Uh Oh: US Manufacturing Enters Recession, Due to Trade War Pressures

|
|
Posted: Oct 03, 2019 10:25 AM
Uh Oh: US Manufacturing Enters Recession, Due to Trade War Pressures

"Trade wars are good and easy to win," someone once said.  And that someone is now in danger of losing one of his most potent arguments for re-election.  With the trade war with China raging on -- hurting both countries' economies, as expected -- a key metric is flashing a fresh and significant warning sign on American manufacturing.  This is just one sector, true, but it's a big one, on which a certain someone has placed outsized emphasis in his political rhetoric:

The recession in US manufacturing worsened last month as plunging global demand and trade frictions drove activity to its lowest point since the Great Recession, according to an industry survey released Tuesday. The unexpected drop in the Institute for Supply Management's closely-watched index was another worrying sign for the US economy, amid President Donald Trump's trade war with China, slowing consumer spending and weaker sales of major factory-made goods...ISM's manufacturing index fell 1.3 points to 47.8 percent in September, the lowest point since June 2009 and showing continued contraction. Any reading above 50 indicates growth. Economists had expected the index to recover to above 50 percent, which would have marked renewed growth. Instead, manufacturing recorded its sixth straight monthly decline and its second month in contraction.

One economist after another is attributing this effect to the trade war, including this simultaneously reassuring yet dire warning: "Ian Shepherdson of Pantheon Macroeconomics said the ISM report was 'pretty awful...this survey is a not consistent with recession across the whole economy,' he said in an analysis. But the warning signs here are clear enough. The trade war is wreaking havoc, to the point where the incipient upturn in manufacturing in China is not transmitting, at all, to the US.'" Reg flags on an overall recession aren't flapping (at least not yet, with some mixed signals and unambiguously good news in recent months), but US manufacturing is incontrovertibly contracting at this point.  And how's this for a soundbyte?


Allahpundit links to that CNBC story in his post on this, in which he speculates that Trump's creepily chummy, congratulatory tweet to the communist tyrants of Beijing on the 70th anniversary of their regime seizing power might signal his strong desire -- desperation? -- to strike a face-saving deal before the election:

Trump has never had moral qualms about doing business with monsters, as his North Korea policy proves most vividly. He’s transactional, and he’s trying to get Kim Jong Un to agree to a particular transaction. The state of U.S. manufacturing makes it that much more urgent that he convince China to agree to a particular transaction too — the end of the trade war sometime over the next 13 months, preferably sooner rather than later so that the economy has time to regain steam before November. Some economists are already predicting that he’ll make a deal even if the differences between the old and new U.S./China trade relationship end up being cosmetic, simply in order to get past this in time for reelection.

"He just can’t afford to lash them like he does with most other rivals and enemies. They have too much leverage over his electoral fortunes by dint of the trade war, and the worse the economic forecasts look, the more leverage they have," he concludes, referring to the Chinese.  For what it's worth, every GOP statement on the PRC's anniversary I've seen was far stronger and morally clearer than Trump's short missive.  If this theory is correct, and Trump agrees to a 'cosmetic' deal in order to un-squeeze American manufacturing and the economy more broadly, what might that look like?  China genuinely is a bad actor on the global trade stage, and they deserve repercussions for currency manipulation and intellectual property theft.  Any pact that basically lets China off the hook on these fronts would be widely seen as a capitulation.  But talk about a harmful wet blanket on otherwise strong policies and outcomes:


The resulting political dilemma is acute and self-evident.  Meanwhile, here's some better news for Trump on the 2020 front:


Trump's campaign war chest will be flush, and the GOP's voter targeting and mobilization operation will be sophisticated and robust, as the general election season arrives.  Such factors can make the difference in a close election.  But if the economy is wheezing next fall, on top of everything else, there's a chance it might not be terribly close.  We'll check in on how the national mood is feeling in ten months or so.  I'll leave you with this point of comparison:


Sometimes, the better-funded campaign wins.  Sometimes, it...does not.

UPDATE - Yet more Trump tariffs, and not against China either: