IHS Markit, a London-based economics research firm, conducted a survey of just over 800 manufacturing companies between October 12-26 and discovered that President Trump’s deepening trade war would raise prices for US consumers (tariffs are a hidden tax), but here is the shocker: it will not bring back many overseas manufacturing jobs.
As the administration’s tariffs on $34 billion worth of Chinese goods kicked in July, President Trump, White House officials, and conservative media unleashed a wave of propaganda emphasizing that higher duties would encourage the revival of America’s manufacturing sector. By Sept., Trump announced another round of new duties of 10% on $200 billion in Chinese imports, which will increase to an eventual rate of 25% by Jan. 01.
To make matters worse, China immediately implemented retaliatory tariff, calling it the “biggest trade war in economic history.”
Months later, the administration’s promise of a manufacturing revival through taxing Chinese imports had backfired. More than 4 in 10 companies surveyed said they are raising prices to offset the higher cost of production (again, a tax on American consumers as real wages remain to stagnate). About 1 in 10 said they expect to reduce the share of total output manufactured outside the US. Approximately the same number said the tariffs would encourage them to move more jobs back home.
Trump has touted on social media that “JOBS are coming back to America” as proof that his strategy is working. On Wednesday, he tweeted a steelmaker’s plan to create “600 good-paying U.S. JOBS.”
Steel Dynamics announced that it will build a brand new 3 million ton steel mill in the Southwest that will create 600 good-paying U.S. JOBS. Steel JOBS are coming back to America, just like I predicted. Congratulations to Steel Dynamics!
— Donald J. Trump (@realDonaldTrump) November 28, 2018
However, those gains were wiped out by a headline earlier in the week that General Motors would layoff some 14,000 workers in North America and close five manufacturing plants. GM CEO Mary Barra said the company faced many challenges but did not explicitly link Trump administration tariffs, the automaker has been under severe pain by the rapid rise in steel prices from US duties on imported steel and retaliatory auto tariffs by China.
“They left us hanging.”
GM is cutting more than 14,000 jobs and plans to focus on electric and self-driving vehicles pic.twitter.com/0gorVPOsMS
— TicToc by Bloomberg (@tictoc) November 28, 2018
The layoff list continues to grow this month…
Lay offs I’ve seen announced in last month, explain why this is evidence of a strong economy?
— OW🎄 (@OccupyWisdom) November 29, 2018
Earlier this month, another survey showed more than 70% of US firms operating in Southern China are considering delaying further investment in the country and are moving manufacturing facilities to other countries as the trade war deepens.
According to the poll by the American Chamber of Commerce in South China, which surveyed over 200 companies, US firms operating in China warned – they are experiencing extreme difficulties from trade disputes than firms from other countries.
64% of the companies said they were planning to relocate supply chains outside of China, but only 1% said they would even consider establishing manufacturing bases in North America.
“While more than 70% of the U.S. companies are considering delaying or canceling investment in China, and relocation of some or all manufacturing out of China, only half of their Chinese counterparts share the same consideration,” the AmCham report said.
As the trade war deepens, supply chains in China are being forced to shift to Southeast Asia – not back to North America, the survey found.
In short, the global supply chain is a huge, complicated process. Nonetheless, we can make some informed assumptions if the tariffs are actually working, in accordance to Trump admin’s revival narrative of the economy.
Glancing at the Federal Reserve Bank of Philadelphia’s monthly state leading indicator maps. They project state-by-state economic conditions six months into the future based on key metrics like housing permits, initial unemployment benefit claims, delivery time for goods produced by manufacturers, and the spread between short- and long-term interest rates, said The Washington Examiner.
The first map is for Sept. 2018, along with Aug. 2018 for comparison. The Aug. map shows most states west of the Mississippi River in forest green, indicating high pace growth. However, one month later, in Sept., a number of those states turned a paler shade of green, which showed slower economic growth.
August 2018 State Leading Indexes
September 2018 State Leading Indexes
Across the map, the slowdown was seen in Iowa, Nebraska, North Dakota, and South Carolina. The first three laggards are heavy grain exporting states; South Carolina is a heavy exporter of manufactured goods.
What can we infer? Maybe trade wars are starting to bite, and an economic blowback is shortly around the corner for the Trump administration.
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