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Wednesday,  10/23/2019

Trade instability hinders US economy: experts

NDO – Forecasts and statistics have shown that “dark clouds” have begun to cover the prospects of the world’s leading economy.


A truck passes by cargo containers at the Port of Seattle on April 6, 2018. (Photo: AP)

The US Federal Reserve (Fed) has released its research results, which warned that instability from the trade tension between the US and other countries would cause the GDP of the no. 1 economy in the world to drop by 1% early next year.

The above research results were published in the context of the escalating trade war between the US and China, while trade tensions have also occurred between the US and many other partners, such as Canada, Mexico, the Europe Union and India. Fed pointed out that the increasing instability from 2018 is closely related to the decline in global industrial production and trade. Due to repeated trade tensions, instability would increase, laying the negative impact on US GDP growth in the first months of 2020, leading to a GDP reduction of up to 1%.

Fed experts have expressed that, even if the escalating trade tensions in May and June have been avoided, perhaps the negative impacts of instability on the US economy have begun to decline. However, after successive unsuccessful rounds of negotiations, the US and China have repeatedly imposed duties on each other’s imported goods, causing a chain effect that pushes the Chinese economy into difficulties and potentially causes US GDP to be reduced further in the second half of 2019 and in 2020.

Before Fed released its research results, the latest statistics and forecasts also showed that the economic outlook is gloomy due to trade tensions. The Institute for Supply Management (ISM) said that US manufacturing decreased in August. Accordingly, the US manufacturing Purchasing Managers’ Index fell in August decreased from 51.2% in July to 49.1%. This is the lowest level since January 2016 and the fifth consecutive month that the index has decreased.

The survey showed that US business confidence also dropped significantly, and it is difficult to predict when the current decline will reverse.

The labour market, which has been a “bright spot” of the US economy for many months, also appears gloomy. In a report released on September 6, the US Department of Labour said that in August, US businesses created an additional 130,000 jobs, lower than forecasted, amid escalating trade tensions between the US and China and the global economy slowing down. The low number of new jobs created in August has raised concerns that a global economic slowdown could cause an economic slowdown in the US after more than 10 years enjoying growth.

Giving its forecast on the prospects of US economic growth, UBS said that the US GDP growth rate would drop to 1.8% in the fourth quarter of 2019, before slowing down at 0.5% in the first quarter of 2020 and 0.3% in the second quarter of 2020, marking a sharp decline from the 3.1% growth in the first quarter of 2019. On September 4, UBS warned of the trade war could cause oil prices to drop and kindle a recession in the US. Seth Carpenter, the Swiss bank’s chief economist, said that, due to the trade war with China, the US economy would slow down and could fall into recession right before the 2020 US presidential election.

As the escalating trade war is causing negative impacts on the US and China economies, the two countries’ trade negotiating officials have agreed to conduct the 13th high-level trade and economic negotiation round in early October in Washington. Analysts hope that the negative signals from the US economy as mentioned above could cause the White House to consider a cool down in the current trade war. Accordingly, the two leading economies in the world could achieve certain results in the next round of trade negotiations. The hope, however, is extremely fragile when US President Donald Trump has warned that Washington would be “tougher” in negotiations if Beijing extends negotiations until his second term as president, if he is re-elected.

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