Trump Says China Will Suffer as Data Shows Trade War Hurting U.S.
President Trump said on Tuesday that Chinese manufacturing would “crumble” if the country did not agree to the United States’ trade terms, as newly released data showed his trade war was washing back to American shores and hurting the factories that the president has aimed to protect.
Days after new tariffs went into effect on both sides of the Pacific, a closely watched index of American manufacturing activity fell to 49.1 from 51.2, signaling a contraction in United States factory activity for the first time since 2016. The companies responding to the Institute for Supply Management survey, which the index is based on, cited shrinking export orders as a result of the trade dispute, as well as the challenge of moving supply chains out of China to avoid the tariffs.
The manufacturing sector’s struggles are likely to increase as the world’s two largest economies continue to escalate their trade fight. On Sunday, Mr. Trump placed a new 15 percent tariff on a range of consumer goods, including clothing, lawn mowers, sewing machines, food and jewelry, and Beijing retaliated by increasing tariffs on $75 billion worth of American products. China also said on Monday that it was filing a complaint at the World Trade Organization over Mr. Trump’s new tariffs.
Markets sank on weaker economic news and worries about the trade war. The S&P 500 was down about 0.9 percent, with particular weakness in industrial and energy stocks.
Prices of key industrial commodities were also lower, with futures prices for benchmark American crude oil down roughly 3 percent. Copper, considered a barometer of the health of the global industrial sector, was down a bit less than 1 percent.
The yield on the 10-year Treasury note declined to 1.45 percent, as jittery investors continued to buy government bonds, pushing prices up and yields lower. The drop in bond yields this year — the yield on the 10-year note was above 3 percent in late 2018 — suggests a broad-based cut in expectations for economic growth among investors.
“The U.S. trade war with the world has blown open a great big hole in manufacturers’ confidence,” Chris Rupkey, the chief financial economist at MUFG Union Bank, wrote in a note on Tuesday. “The manufacturing sector has officially turned down and is falling for the first time this year as the China tariffs and slowdown in exports has really started to bite.”
The president has continued to insist that pain from the trade war is falling primarily on China, not the United States. On Friday, he said American companies were leaving China in response to his tariffs, a development that put the United States in an “incredible negotiating position.” And he said any business that complained about financial pain from the tariffs was suffering from bad management, not the trade war.
Many chief executives and trade groups say they support the president’s goal of changing China’s economic practices, particularly those that require businesses to hand over valuable technology as a condition of operating in China. But businesses have begun to express concern about the seemingly unending trade war. Many big companies, particularly those in the retail and manufacturing sectors, have downgraded sales and profit forecasts as a result of the tariffs.
The trade war’s potential to slow America’s economic expansion, including its impact on the manufacturing sector, has already prompted concern from Federal Reserve officials. The Fed cut interest rates for the first time in more than a decade in July, and officials have said they are prepared to cut them further to protect the economy against fallout from slowing global growth and trade risks.
Even some officials who did not vote in favor of July’s rate cut say economic risks have increased.
Eric Rosengren, the president of the Federal Reserve Bank of Boston and a monetary policy voter this year, indicated that he still favored waiting and watching incoming economic data before making interest rate cuts beyond the July move, which he voted against.
But he also said it was “clearly reasonable” to judge that risks to the economy were elevated. “Should those risks become a reality, the appropriate monetary policy would be to ease aggressively,” he said, suggesting that he might favor rapid interest rate cuts if economic data soured meaningfully.
The Trump administration has been pressuring China for more than two years to make a trade deal that would strengthen its protections for American intellectual property and result in large purchases of American products. But the two sides continue to have significant disagreements, including which of Mr. Trump’s tariffs should be rolled back and what kind of legal changes China must make to treat American companies more fairly.
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