US President Donald Trump warned he would be “tougher” on Beijing in a second term if trade talks dragged on, compounding market fears that ongoing trade disputes between the United States and China could trigger a US recession, Reuters reports.
The world’s two largest economies imposed fresh tariffs on each other on Sunday, ratcheting up a tit-for-tat tariff war that has unsettled financial markets and raised the specter of a global recession. US and Chinese negotiators are due to meet in person in Washington this month, but no date has yet been set.
US stocks fell on Tuesday as data showed factory activity contracted for the first time since 2016 in August, while the benchmark 10-year U.S. Treasury yield fell to its lowest since July 2016.
Trump, ignoring recent negative US economic data, said in a posting on Twitter that the US was “doing very well in our negotiations with China”, and played up the damage US tariffs were doing to the Chinese economy.
He warned that Beijing faced even tougher terms if the two sides did not resolve their trade dispute and he won re-election in November 2020, writing, “Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!”
He did not provide details about the negotiations or how they could become tougher.
Thomas Donohue, chief executive of the US Chamber of Commerce, told CNBC that US companies and workers were bearing the brunt of the US tariffs but China’s economy was also hurting.
He urged Trump to postpone the new tariffs that went into effect to give both sides time to reach an agreement.
Congressional passage of the US-Mexico-Canada (USCMA) trade agreement was possible, and would help boost the US economy while reassuring financial markets, he said. “It would rub off on what we’re doing in China.”
Trump, a Republican, has often publicly repeated his belief that Beijing is trying to slow-walk trade negotiations in the hopes a victory by a Democratic presidential candidate in 2020 may lead to better terms in an agreement.
Washington began imposing 15 percent tariffs on an array of Chinese imports on Sunday, while China began placing new duties on US crude oil.
China has since lodged a complaint against the US at the World Trade Organization over US import duties, its third lawsuit challenging Trump’s China-specific tariffs.
Chinese Vice Premier Liu He said earlier on Tuesday that China vehemently opposes a trade war.
US manufacturing shrinks
US manufacturing activity contracted for the first time in three years in August, with new orders and hiring declining sharply as trade tensions weighed on business confidence.
Concerns about the economy, which is in its longest expansion ever, were also exacerbated by other data on Tuesday showing construction spending barely rising in July.
The reports somewhat offset last week’s upbeat data on consumer spending that had suggested that while the economy was slowing, it was not losing momentum as rapidly as financial markets were flagging.
“The canary in the mine may be falling off its perch,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “With manufacturing now starting to contract, it is even more critical that the consumer keeps spending.”
The Institute for Supply Management (ISM) said its index of national factory activity dropped to a reading of 49.1 last month from 51.2 in July. A reading below 50 indicates contraction in the manufacturing sector, which accounts for about 12 percent of the US economy. Last month marked the first time since August 2016 that the index broke below the 50 threshold.
August’s reading was also the lowest since January 2016 and was the fifth straight monthly decline in the index. The United States now joins the euro zone, Japan, the United Kingdom and China, which have long been experiencing a contraction in factory activity.
Still, the ISM index remains above the 43 level, which economists associate with a recession. The US-China trade tensions also coincide with diminishing stimulus from last year’s US$1.5 trillion tax cut package.
In a separate report on Tuesday, the Commerce Department said construction spending edged up 0.1 percent in July. Data for June was revised up to show construction outlays decreasing 0.7 percent instead of falling 1.3 percent as previously reported.
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