American Business Scrambled to Beat Big Wave of China Tariffs

(Bloomberg) --

Another reminder arrived this week of how President Donald Trump’s trade war is driving business decisions.

U.S. imports of consumer and capital goods jumped by the most all year in August, while other major categories eased. You’ll recall that Trump announced 10% tariffs on an additional $300 billion in Chinese items at the start of that month, which likely left companies scrambling to boost shipments of exactly those goods to save some money before getting hit with higher prices starting Sept. 1.

While the goods trade data release didn’t include merchandise shipments or break down regions, some assumptions can be made because this has happened several times before, when Trump announced or threatened levies on China, and his brief flirtation with levies on Mexico in June. That’s been the ongoing game for U.S. firms, and executives have pointed to the trade uncertainty as a risk to business growth (in the case of FedEx for example) and to the economy.

Washington’s trade war with Beijing has created supply-chain headaches for U.S. firms that rely on Chinese imports, at the same time capital spending slows in response to weaker global growth. As a result, manufacturing has gone from a bright spot to a soft one.

The tariffs are also obscuring the true picture of economic growth: Boosts in exports and inventories tend to provide temporary strength to quarterly gross domestic product, while emptying warehouses weigh on GDP — a phenomenon that in the past year has bounced the data around. The higher prices have also filtered through somewhat into inflation, and the consumer outlook.

Overall, global goods trade was weaker in August. The merchandise trade gap barely budged (it widened, but less than expected), with exports ticking up slightly and imports rising 0.3%. Watch for the full trade balance report Oct. 4, which will provide more detail, including a regional breakdown.

Charting the Trade War

The European auto industry is being weighed down by slowing economic growth, a shift to electric vehicles, tighter emission rules and the enduring trade spat between the U.S. and China — the largest automobile market.

Today’s Must Reads

• Belt and road threat | Japan sees China using the “Belt and Road” initiative to push its People’s Liberation Army into the Indian and Pacific Ocean regions, shaking up regional security.
• China rush | Executives from the biggest U.S. financial firms met with top regulators in Beijing in a sign that the trade war with the U.S. has done little to derail China’s opening of its $43 trillion financial system.
• Lose-lose game | An escalating battle over aircraft subsidies between the U.S. and the European Union threatens to damage both sides, said Airbus Chief Executive Officer Guillaume Faury.
• Brexit shortfalls | Medicine suppliers are less prepared for a no-deal Brexit now than they were in the run-up to the original deadline for leaving the EU, the government’s spending watchdog said. Meanwhile, the U.K.’s two biggest grocers warned of possible threats to the food supply.
• Japan-South Korea fallout | An escalation of the trade war between the two countries will have a greater ripple effect than is priced in markets, as it could disrupt the technology supply chain starting with China, S&P Global Ratings warns.

Economic Analysis

• Pinching profits | Huawei’s flagship handsets may bear brunt of trade war’s impact.
• U.K. recession | Bloomberg Economics expects a U.K. election to return a government with a mandate for a hard Brexit, which will be delivered in early 2020. A recession, above-target inflation and rate cuts by the BOE are likely to follow.

Coming Up

• Sept. 30: Phil Hogan’s hearing to be EU trade commissioner
• Oct. 1: South Korea trade balance
• Oct. 3: Australia trade balance
• Oct. 10-11: U.S.-China talks in Washington

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe Schneeweiss

©2019 Bloomberg L.P.