Trade War Casualties

Trade War Casualties

Some US manufacturers are delaying investments and raising prices as President Donald Trump escalates trade wars with key US economic partners but most companies report no change, according to a survey released Monday.

The National Association for Business Economics also found in its monthly report that members unanimously expected economic growth to continue in the next year, with most forecasting inflation adjusted growth of more than two percent.

“Labor market conditions are tight with skilled labor shortages driving firms to raise pay, increase training and consider additional automation,” Sara Rutledge, chair of the quarterly survey, said in a statement.

Companies reported rising profits and higher sales expectations. But despite the scarcity of workers, a survey index of wage growth slowed after hitting a record in April.

The survey, which polled 98 economists at private companies and trade associations, also found signs of rising prices, a possible sign that inflation and Trump’s new import duties were filtering into the economy.

An index of prices charged hit a 12-year record, jumping 14 points, while a measure of materials costs hit a seven-year record, soaring 15 points.

Trump this week began the process to impose tariffs on up to $200 billion in additional imports from China, adding to the levies imposed on $34 billion in goods which took effect earlier this month.

Economists say this could boost inflation, which already is beginning to rise after a decade of economic recovery, albeit gradually.

Still, a majority in the NABE survey, 65 percent, said trade concerns were not causing their companies to change plans for investment, hiring or pricing.

Things were chillier in the goods producing sector, however, with only 37 percent reporting no change.

Among manufacturers, 26 percent said they were delaying planned investments and 16 percent reported having to raise prices.

And, as the same survey had found April, most respondents, or 65 percent, said they were not changing plans to hire or invest because of December’s sweeping corporate tax cuts.

Asian markets fell Monday while data showed China’s economic growth slowed in the second quarter as the country sits on the brink of a potential all-out trade war with the United States.

After a positive end to last week’s roller-coaster ride for equities, investors shifted back into defensive mode in early business with concerns about the impact of tit-for-tat tariffs on the world’s top two economies.

Beijing said growth in April-June came in at 6.7 percent, in line with forecasts in an AFP survey and better than the government’s annual target but a tad down from the previous three months.

While the reading refers to the three months before US levies on billions of dollars of Chinese goods were imposed, observers had already pointed out the country was likely to struggle with a face-off as leaders battle a debt mountain and pollution.

At the same time the yuan and local stock markets are tumbling.

News Friday that China’s trade surplus with the US, a major cause of Trump’s anger, hit a record in June has added to the tensions.

China faced an “extremely complex environment both at home and abroad”, said Mao Shengyong, a spokesman for the national statistics bureau.

In mid-morning trade Shanghai was down 0.6 percent and Hong Kong lost 0.3 percent, while Sydney eased 0.4 percent. Singapore, Seoul, Wellington and Taipei were also lower. Tokyo is closed for a public holiday.

– Trade hopes –

There are hopes that Beijing and Washington can reach an agreement to avert an all-out trade war, with some experts optimistic that China offered a relatively muted response to Donald Trump’s threats of further tariffs on $200 billion of goods.

“Should the US eventually move ahead with these tariffs, China could not escalate on an even basis given China only imports roughly $130 billion annually from the US, suggesting they would either

On currency markets the pound held its own against the dollar after fluctuating on Friday in reaction to an interview in which Trump hit out at Prime Minister Theresa May’s handling of Brexit and appeared to dampen hopes of a future trade deal, before later taking the edge off his remarks.

Traders are looking ahead now to congressional testimony by Federal Reserve chief Jerome Powell, hoping for some insight on the central bank’s plans for lifting interest rates in light of the trade war.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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