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Trump's trade war an exercise in mutually assured global destruction
Trump's trade war an exercise in mutually assured global destruction

AllAfrica

time3 days ago

  • Business
  • AllAfrica

Trump's trade war an exercise in mutually assured global destruction

The recent spate of dreadful US data probably has Donald Trump hoping the Jeffrey Epstein scandal gets even more attention than it is. Of course, the US president is trying to conjure all his weapons of mass distraction to push reports of his ties to the disgraced sex offender out of the headlines. For Trump, though, fast-mounting evidence that his one-man tariff arms race is backfiring at home could be more politically dangerous. The US added just 73,000 new jobs in July. There were also seismic revisions to the previous two months, indicating that the globe's biggest economy is weaker than official figures suggested. 'Not only was this a much weaker than forecast payrolls number, the monster downward revisions to the past two months inflicts a major blow to the picture of labor market robustness,' says Seema Shah, chief strategist with Principal Asset Management. 'What's more concerning is that with the negative impact of tariffs only just starting to be felt, the coming months are likely to see even clearer evidence of a labor market slowdown.' The about-face in perceptions of US economic invulnerability puts the US Federal Reserve in a new tough spot. Trump has been banging the table for rate cuts and ratcheting up threats to fire Fed Chair Jerome Powell. News that payrolls averaged just 35,000 over the last three months — the weakest pace of job growth since the pandemic in 2020 — appears to have Trump in panic mode. So much so that on Friday (August 1), just hours after the jobs numbers were released, he fired the head of the statistical agency that tabulates the data. Yet it's the mirror that Trump should be looking at. The effects of Trump's massive tariffs on hundreds of countries — including 30% on China — are already boomeranging back on America. They're adversely affecting other major economies, too, as the global trade order enters a new chaotic era. Look no further than China's official manufacturing purchasing managers' index (PMI), which remained below the 50 mark in July, denoting contraction. That 49.3 reading comes as Asia's biggest economy battles unrelenting deflationary pressures. China's 'PMI slowdown points to a weak start to the third quarter,' says Carlos Casanova, economist at Union Bancaire Privée. 'This marks the fourth consecutive month of contraction, driven by declining export orders and weak domestic demand.' Casanova notes that Chinese and inflation data out later this week will provide the first official insight into the pace of economic slowdown in the July-September period. Generally speaking, he notes, 'deflationary pressures are expected to continue, reflecting sluggish domestic demand.' China's consumer price index, out Saturday, has remained near zero throughout 2025 and 'could dip into negative territory in July, influenced by seasonal factors and weakening real estate activity indicators,' Casanova says. In China, the real estate sector plays a pivotal role in shaping domestic sentiment due to significant household exposure to this asset class, notes Casanova. The sharp decline in real estate activity from May to July may have dampened consumer confidence, potentially weighing on retail sales. The headwinds from Trump's trade war, meanwhile, are making things even tougher for China's pre-trade-war, pre-existing conditions. These include a property crisis, high youth unemployment and local governments struggling under the weight of crushing debt burdens. Yet it's the mutually-assured destruction dynamic emanating from Trump's tariffs that's dampening the global outlook. It's not just the US and China, of course, but economies from Canada to Germany to Japan. As British Columbia Premier David Eby puts it: 'The trade war that we're in right now, that neither Washington state nor British Columbia asked for … but is being imposed on us by the president, is a recipe for mutually assured destruction.' One of the great ironies of Trump's recent attempts to stop Beijing is his aping of Chinese Communist Party tactics in a nation that prides itself on being a model of free-market transparency. Exhibit A: firing Erika McEntarfer, the Bureau of Labor Statistics commissioner, for, in Trump's telling, 'faking' weak employment data. 'For six months, I've said that threats to economic data have been more collateral damage than intentional harm — no longer,' says Jed Kolko, a senior fellow at the Peterson Institute for International Economics, a Washington-based think tank. 'Firing the head of the BLS is five-alarm intentional harm to the integrity of US economic data and the entire statistical system.' Economist Michael Strain at the right-leaning American Enterprise Institute chimes in, 'it's imperative that decision makers understand that government statistics are unbiased and of the highest quality.' No longer, indeed. Upcoming US data on employment, inflation, gross domestic product and international trade may require an asterisk in much the way Wall Street has long viewed Beijing's official numbers with suspicion. Yet this Chinafication dynamic doesn't stop there. Trump's desire to eliminate the Fed's independence is an effort to morph the most respected US institution into another People's Bank of China. Though PBOC Governor Pan Gongsheng wields certain powers, big decisions on interest rates, reserve requirements and yuan levels are made far above his pay grade. Trump's intensifying assault on the media is also right out of the CCP's playbook. Trump's moves to dismantle the Voice of America news agency, kill off the Public Broadcasting Service, browbeat ABC and CBS into submission via settlements and sue The Wall Street Journal, New York Times and others must have information censors in Beijing blushing. 'There's real Ministry of Truth stuff going on right in front of our eyes,' writes political pundit and podcaster John Archibald. 'Just like Orwell wrote it.' Yet for Trump, who was elected mainly a second time to hasten GDP, the tariffs are proving to be economic poison. Whichever loyalist he names to head the Bureau of Labor Statistics will have a hard time masking the inflationary pain from Trump's tariffs. Six-plus months in, it's abundantly clear that the US is sustaining bigger blows than Asia's biggest economies. All this throws cold water and new suspicion on the surprisingly strong 3% growth rate the US produced in the second quarter. Case in point: Don Bacon, a Republican Congressman for Nebraska, claiming that 'GDP here has decreased by 6% over the last year. And it's all about trade. It's all about getting corn and soybeans out the door.' As he told CNN: 'We're now in a troubled time.' Chief Goldman Sachs economist Jan Hatzius says that even if the US is expected to avoid a recession, GDP is forecast to only expand about 1% this year as tariff rates rise. Core inflation, meanwhile, is projected to climb to about 3%. As such, he notes, 'there are signs that consumer spending is stagnating.' At the same time, Hatzius adds, 'investors are increasingly focused on the outlook for US deficits, and those concerns are beginning to drive up yields on longer-maturity Treasuries.' The US national debt has topped US$37 trillion. Trump's recent 'Big Beautiful Bill' will add $4.1 trillion to that pile through 2034, says the nonpartisan Committee for a Responsible Federal Budget. Against this, Trump is playing the economic version of Russian roulette with the Fed, the globe's most important financial institution. Trump's obsession with bilateral tariff deals also missed the point that the global financial system is increasingly interconnected, like borderless supply chains. This extreme bilateralization of trade is a reminder that Trump's economic strategy is ripped from the pages of the mid-1980s. The rationale behind Trump's tariff policies dates back to a time when the five most industrialized nations held vast sway over economic dynamics. The problem with a US leader prioritizing 40-year-old sticking-time strategies is that 'Made in China 2025' is upending the global economy in real time. And at a moment when China is investing in industries and sectors it thinks will lead the world in 2035. This goes, too, for a Global South that's increasingly forging its own path – one that barely factors in where the US might fit in a decade from now. 'The world economy is splitting into competing groups instead of a single connected system of globalization of the 1990s,' says Gilles Moec, chief economist at AXA Investment. Trump tariffs, in other words, won't shrink cross-border trade. Instead of bringing production back to the countries where products are used, global companies have been reorganizing supply chains around groups of countries or 'clubs' with similar values or security concerns, Moec argues. He argues that as long as clubs include both low-wage nations and high-spending economies, the adverse effects of this 'diluted version of globalization' – such as inflation and lower efficiency – can be mitigated and 'can still keep the wheels moving.' Another problem: the rather capricious nature of Trump's tariff rates. In response to Canadian Prime Minister Mark Carney rolling his eyes at Trump's 51st state strategy, Ottawa is being hit by a higher-than-China 35% tax. A threatened 50% tax on Brazil, with which the US enjoys a trade surplus, also suggests Trump's worldview has pivoted from economic strategy to personal attacks. Trump is irked that Brazil is holding former President Jair Bolsonaro accountable for an alleged 2022 coup attempt. The real indignity may come from China, though, if Xi Jinping refuses to bow to Trump World. Xi, remember, has yet to offer concrete concessions to signal fealty to Trump, which continues to delay the deadline for a deal. Though Trump has claimed since late June that 'we just signed with China the other day,' officials in Beijing hold that US-China trade deal talks are still in the early stages, at best. The longer China drags its feet, the harder it becomes for Trump to convince his #MAGA base that huge economic wins lie ahead to make tariff disruptions worth it. Yet despite weak data here and there, China is holding up much better than expected in the face of Trump's barrage of tariffs. China's claimed 5.2% GDP growth rate in the second quarter likely shows Xi's economy was readier for the tactics of Trump 2.0 than Washington anticipated or understood. And that Xi's strategy to diversify trade flows to non-US markets is paying off while Trump's troubles intensify and mount. Follow William Pesek on X at @WilliamPesek

5 questions Trump faces after dismal jobs report; BLS commissioner firing
5 questions Trump faces after dismal jobs report; BLS commissioner firing

The Hill

time01-08-2025

  • Business
  • The Hill

5 questions Trump faces after dismal jobs report; BLS commissioner firing

President Trump's economic pitch took a serious hit Friday after the latest federal jobs report revealed stunning weakness in the labor market. He responded by firing the commissioner of the Bureau of Labor Statistics (BLS) for what he called politically-motivated revisions that lobbed off hundreds of thousands of job gains earlier this summer. The dismal jobs report raised serious questions about the strength of the U.S. economy, especially in light of looming tariffs causing anxieties in the global market. Here are the five big questions facing Trump as he faces the fallout. How much worse does it get? After months of warnings from economists and weakening data from the private sector, federal jobs numbers have caught up to the concern. The July jobs report dramatically changed the picture of the U.S. economy, ramping up concerns fueled by Trump's tariffs and the uncertainty they unleashed. The U.S. added only 73,000 jobs in July and just 106,000 jobs since May — a three-month total barely enough to sustain the labor market for one month. 'Not only was this a much weaker than forecast payrolls number, the monster downward revisions to the past two months inflicts a major blow to the picture of labor market robustness,' wrote Seema Shah, chief global strategist at Principal Asset Management, in an analysis. 'More concerning is that with the negative impact of tariffs only just starting to be felt, the coming months are likely to see even clearer evidence of a labor market slowdown.' The U.S. economy needs to add 80,000 and 100,000 jobs each month just to replace those who leave the workforce for retirement or incapacity. Without a significant turnaround, the unemployment rate could begin to rise, and the overall economy could slow drastically. 'The U.S. slowdown is starting to take shape,' wrote Alexandra Wilson-Elizondo, global co-CIO at Goldman Sachs Asset Management, in a Friday analysis. She added that a decline in labor force participation, which is also bad for the job market, was keeping the unemployment rate from rising further. 'While overall levels are not flashing red, the trend is cause for concern,' she wrote. How does Trump adjust his tariff plans? Trump and top White House officials spent months laughing off the dire projections of economists, who feared his tariffs would tank the job market and boost inflation. That position may not be tenable after Friday. The July jobs report came out on what was supposed to be the final deadline for the imposition of Trump's 'reciprocal' tariffs. After insisting for weeks that he would not delay the deadline further, Trump announced Thursday evening that some countries would have an additional week to strike deals with the U.S. Trump's latest punt — which happened after the president is typically briefed on the jobs report — was the latest in a series of delays issued amid rough economic news or stock market turmoil. The president proposed much steeper tariffs during his 'Liberation Day' announcement in April, but delayed and weakened his plan after two weeks of turmoil in financial markets. Trump and top White House economic aides touted the benefit of federal revenue from import taxes, which are paid by the U.S. businesses and individual who purchase foreign goods. But the growing pressure of his tariffs could prompt further delays from Trump. Trump could also keep higher headline tariff rates while quietly making exemptions for key goods, undermining the overall goal of his import taxes while potentially avoiding some of the costs. 'A web of exemptions and, in the case of the deals, preferential rates means many key imports face lower tariffs or none. That significantly lowers the actual tariff rate, in many cases well below the quoted headline rate,' wrote Michael Pearce, deputy chief U.S. economist at Oxford Economics, in a Friday analysis. How does the Fed respond? The stunning July jobs numbers will boost pressure on the Federal Reserve to cut interest rates at its next policy meeting in September, and are already raising questions about whether it should have cut rates already. The Fed kept rates steady Wednesday as inflation continued to rise and the labor market appeared to be weakening at a much slower rate than seen in Friday's jobs report. While Fed Chair Jerome Powell acknowledged Wednesday the risks that the job market could weaken quicker than expected under the bank's moderately high interest rates, he said he and his colleagues were still unsettled about how Trump's tariffs could drive inflation higher. The Fed now appears to be in a quagmire with the country on track for both a weaker economy and higher inflation — a dynamic known as 'stagflation.' Lower interest rates could stimulate the sluggish labor market, but also drive inflation higher with additional money in the economy. Keeping interest rates unchanged could stave off inflation, but suffocate the economy into higher unemployment and slower spending. 'With persistent policy uncertainty, tariffs, and diminished immigration flows paralyzing employers, the U.S. economy is now flirting with job losses, revealing a labor market that is much weaker than most Fed policymakers had believed,' wrote Gregory Daco, chief economist EY-Parthenon, in a Friday analysis. 'The Fed is now behind the curve.' Will voters ding Trump as job approval sinks? Trump is largely fulfilling his campaign promises on the economy, including instituting tariffs, though that policy proved to be much more widespread than what he suggested while running for a second-term. He's also making good on mass deportation plans, which the administration is using to sell what they see as a stronger economy for the American worker. But some slices of voters don't appear to be singing Trump's praises. Trump headed into the big week on the economy with his job approval rating slipping, with net approval dropping 15 points, according to an Economist/YouGov poll. And his net approval rating also fell 9 points to its lowest rating yet last week in the Decision Desk HQ (DDHQ) average, with independents taking issue with Trump's actions on the economy and immigration. Consumer confidence ticked up only slightly in July, a sign that anxieties over the economy could be coming to a head as a result of the president's policies. Consumers also expressed more negative assessments of their economic situations overall. What impact will firing the BLS commissioner have? Experts and economists were left reeling Friday afternoon when Trump announced he was firing the commissioner of Bureau of Labor Statistics (BLS) Erika McEntarfer. That cast doubt on the bureau's reporting standards and the type of revisions it makes on previously released reports. When Trump was later asked if that decision meant anyone providing him data he doesn't agree with could risk losing their job, he responded: 'I've always had a problem with these numbers.' In considering who could be McEntarfer's long-term replacement, Trump did not pinpoint experience in labor statistics as a qualification. 'We need people we can trust,' Trump said. 'I put somebody in who's going to be honest.'

June inflation data reaffirms Fed pause as tariff uncertainty grows
June inflation data reaffirms Fed pause as tariff uncertainty grows

Yahoo

time15-07-2025

  • Business
  • Yahoo

June inflation data reaffirms Fed pause as tariff uncertainty grows

June's Consumer Price Index (CPI) report likely gives the Federal Reserve room to continue its wait-and-see approach to cutting rates amid uncertainty over how President Trump's tariffs will impact inflation. On a "core" basis, which excludes volatile food and energy costs, CPI increased 0.2% from the previous month, slightly lower than economists' expectations but ahead of May's 0.1% gain. Following the report, investors were placing a 97% probability on the Fed holding rates steady at its July meeting, up from 93% on Monday, according to the CME FedWatch Tool. Meanwhile, the chance of a September rate cut dropped sharply after the release, falling below 60% initially and inching closer to 50% as markets digested the data. "The Fed's ability to cut rates was resting heavily on today's inflation print," Seema Shah, chief global strategist at Principal Asset Management, wrote following Tuesday's release. "With inflation coming in softer than expected for the fifth month in a row, it may initially seem like there is still little sign of the tariff-induced boost to inflation that the Fed has been expecting," she continued, referring to the slower-than-expected monthly gain in core prices. "However, with increases in categories like household furnishings, recreation, and apparel, import levies are slowly filtering through to core goods prices." Read more: How to protect your savings against inflation Indeed, apparel prices rose 0.4% in June, and footwear jumped 0.7% after several months of declines. Furniture and bedding prices also climbed 0.4%, reversing the 0.8% drop recorded in May, a potential indication that tariff-related cost pressures are beginning to reach consumers. Shah noted that the full inflationary impact of tariffs will take time to materialize, particularly as many goods were front-loaded ahead of the latest rollouts. "With higher tariffs being announced, it would be wise for the Fed to remain on the sidelines for a few more months at least," she added. Greg Daco, chief economist at EY, echoed that view, noting that the full effects of tariffs have yet to unveil themselves. He believes any resulting price increases will likely be short-lived. "A lot of businesses are talking about rapidly passing on the higher tariff shock from these higher duties. So we're anticipating a rather swift pass-through," he told Yahoo Finance. "But if we are in an environment where there are staggered tariffs over the next year, then there is a risk of more inflation persistence. And I think that's the key risk for the US economy right now." The Fed itself has appeared divided on when to lower interest rates. Minutes from its June policy meeting revealed a split committee, with "most" officials supporting at least one rate cut this year while "a couple" signaled they'd be open to moving as early as July. Others preferred to hold rates steady through year-end. Meanwhile, President Trump has continued his public campaign for significantly lower rates, writing on Truth Social: "Fed should cut Rates by 3 Points. Very Low Inflation. One Trillion Dollars a year would be saved!!!" Read more: How much control does the president have over the Fed and interest rates? The next major inflation test for the Fed comes Wednesday, with the release of the Producer Price Index (PPI), a measure of how much prices are changing for what businesses sell. Later this month, investors will shift focus to the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index. But as Wall Street has consistently been reminded, the Fed's cautious stance is being driven not just by recent inflation data but also by lingering uncertainty around President Trump's evolving tariff policy. Ryan Sweet, chief US economist at Oxford Economics, said that if Trump's proposed Aug. 1 tariffs go into effect, the inflationary impact on goods prices could take several months to appear. Sweet, who is currently forecasting the next rate cut in December, said this would likely keep the Fed on hold unless the labor market weakens significantly. "The new tariffs, if implemented, could tilt the risks toward the next rate cut occurring later than in the baseline," the economist said. "The Fed could be comfortable waiting a little too long and then trying to catch up with more aggressive cuts because of the uncertainty around tariffs." Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at

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