Q&A: Does a manufacturing slump threaten the US economy?

Q&A: Does a manufacturing slump threaten the US economy?

WASHINGTON — Defying fears and predictions, the U.S. economy is still shrugging off President Donald Trump’s trade conflicts.

Employers added a sizzling 266,000 jobs in November, and unemployment matched a 50-year low of 3.5% — all while the Trump administration is waging a bruising trade war with China while fighting other trading partners, too.

Yet the economy has hardly been unscathed. Farmers are suffering. Manufacturers are mired in a slump. Business investment is down because managers don’t know when — or whether — the trade hostilities, with their vast web of import taxes, will end.

What’s more, a new round of Trump tariffs — import taxes on $160 billion more in Chinese goods — is set to hit Dec. 15. Those tariffs would strike directly at American consumers, who are driving the economic expansion and have so far been largely spared the worst of the pain from Trump’s trade fights.

Can the U.S. economy, which has grown steadily if tepidly for over a decade — the longest expansion on record — withstand the manufacturing slump and the Trump trade war?

Here are some questions and answers:

____

HOW HAS THE US ECONOMY WEATHERED THE THREATS?

So far, the U.S. impact of Trump’s trade wars has been confined largely to farms and factories. And trade, farming and manufacturing constitute a surprisingly small portion of the American economy.

Exports and imports account for just 27% of America’s gross domestic product, the broadest gauge of economic output. Only in Nigeria, Cuba, Burundi and Sudan does trade represent a smaller share of GDP than in the United States, according to the World Bank.

American farmers have been punished by other countries’ retaliatory tariffs, notably from China’s taxes on American soybeans. So far this year, U.S. farm exports are down 4%. Yet farming accounts for a scant 0.6% of GDP.

Factories have been damaged too, because Trump’s tariffs have elevated the prices that manufacturers must pay for imported parts. And the retaliatory tariffs that China and other U.S. trading partners have imposed on U.S. exports have reduced America’s access to foreign markets.

But because factory output represents only a small piece of the U.S. economy, the pain has so far remained contained. Manufacturing supplies 8% of American jobs, down from a peak 32% in 1953. And it produces just 11% of GDP, compared with a high of 28%, also in 1953.

Manufacturing “used to be a leading indicator’’ for the rest of the economy, said Diane Swonk, chief economist at accounting firm Grant Thornton. “It is different than it was.’’

Unless the trade hostilities escalate, most economists expect the U.S. economy as a whole to withstand the damage and keep growing, however modestly.

____

HOW ARE U.S. MANUFACTURERS HOLDING UP?

They’re clearly struggling. According to the Institute for Supply Management’s manufacturing index, factory output has fallen for four straight months. The November reading failed to meet even low expectations. New orders, production and export orders all sank.

Factory hiring has slowed, too. Last year, manufacturers added an average of 22,000 jobs a month, the strongest pace since 1997. This year so far? A meagre 5,100 a month. (In November, manufacturers did add 54,000 jobs, but virtually all of that gain came from General Motors employees returning to work after a strike ended in October.)

The Trump administration’s trade conflicts account for much of the manufacturing sector’s woes. Trump’s aggressive and mercurial deployment of tariffs has paralyzed business investment, which fell in the April-June and July-September quarters after having surged in 2018 and early this year. Managers don’t know when the tariffs will end, whether they’ll escalate or which countries Trump might hit next. Many manufacturers have suspended decisions on where to situate factories, choose suppliers or pursue sales until more predictability returns to global commerce.

A broader global economic slowdown, related partly but not entirely to the trade conflicts, is contributing to the downturn in manufacturing.

____

COULD THE MANUFACTURING SLUMP AFFECT THE PRESIDENTIAL RACE?

No area of the country will be more crucial to the election outcome than the Rust Belt states of Michigan, Pennsylvania and Wisconsin, where the manufacturing sector remains a major employer but has shed jobs. Trump scored razor-thin 2016 victories in all three states after vowing to restore the health of factories there.

Democrats are hopeful that the ailing manufacturing sector will help them win back some of the white working-class voters who backed Trump in 2016. But voting patterns in the Trump era can be hard to predict. The president is already casting his prospective Democratic opponents as left-wing radicals who would be poor stewards of America’s manufacturing base.

And polling suggests that voter opinions about Trump are not as connected to his leadership on the economy as has been the case with past presidents.

__

WHAT NEXT?

The business world is waiting to see if Trump proceeds on Dec. 15 with plans to impose tariffs on an additional $160 billion in Chinese imports, a move that would extend his import taxes to just about everything China ships to the United States.

Those tariffs would bring the trade war home to American consumers, whose spending accounts for about 70% of U.S. economic activity. The first tariffs on Chinese goods, begun last year, were designed to largely spare ordinary households. They affected mainly industrial products. By contrast, the Dec. 15 tariffs would hit toys, smartphones and other electronics and would likely lead many retailers to raise prices for consumers.

Services industries like retail are starting to look vulnerable. Though it continues to signal growth, ISM’s services index has weakened substantially over the past year.

“The trade war is beginning to metastasize to the service-side of the economy,” said Mark Zandi, chief economist at Moody’s Analytics.

It’s entirely possible that consumers could soon enjoy a reprieve. U.S. and Chinese negotiators are trying to finish work on a modest preliminary trade agreement. And Trump might agree to cancel or postpone the Dec. 15 tariffs if they do.

But even a so-called Phase 1 deal would hardly resolve the U.S.-China conflict. The world’s two largest economies must still confront the thorniest issues dividing them: Widespread allegations that Beijing steals technology, forces foreign companies to hand over trade secrets and unfairly subsidizes Chinese companies.

“It is critical that the president come to some arrangement with China,” Zandi said. “If instead the president escalates the war, the economic damage will become serious and recession next year likely.’’

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Prime Minister Justin Trudeau holds a press conference at Rideau Cottage during the COVID pandemic in Ottawa on Tuesday, Dec. 1, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Feds spending plan heads to confidence vote as provinces seek more health-care cash

OTTAWA — Provinces are criticizing the federal Liberals for failing to signal… Continue reading

In this Tuesday, Oct. 27, 2020 file photo, Herman Termeer, 54, stands on the roof of his home as the Blue Ridge Fire burns along the hillside in Chino Hills, Calif. An overheating world obliterated weather records in 2020 — an extreme year for hurricanes, wildfires, heat waves, floods, droughts and ice melt — the United Nations’ weather agency reported Wednesday, Dec. 2, 2020. (AP Photo/Jae C. Hong)
UN calls on humanity to end ‘war on nature,’ go carbon-free

As an extreme year for hurricanes, wildfires and heat waves comes to… Continue reading

John Lambert
Military identifies remains of Newfoundland soldier killed in Belgium in 1917

OTTAWA — More than 100 years after a young soldier from Newfoundland… Continue reading

Military police officers carry a bag filled with money left behind by armed bank robbers, in Criciuma, Santa Catarina state, Brazil, Tuesday, Dec. 1, 2020. Dozens of criminals armed with assault rifles invaded the city in southern Brazil overnight and took control of the streets as they assaulted a local bank. (Guilherme Hahn/Futura Press via AP)
Massed Brazilian bank robbers attack another city, kill 1

RIO DE JANEIRO — A large gang of heavily armed bank robbers… Continue reading

(Black Press file photo.)
Red Deer city council holds closed-door discussion about proposed aquatics centre

Recommended design, cost and location won’t be made public until next spring

In this May 16, 2019, file photo, Salesforce chairman Marc Benioff speaks during a news conference, in Indianapolis. In a deal announced Tuesday, Dec. 1, 2020, business software pioneer Salesforce.com is buying work-chatting service Slack for $27.7 billion in a deal aimed at giving the two companies a better shot at competing against longtime industry powerhouse Microsoft. (AP Photo/Darron Cummings, File)
Salesforce buying work-chat service Slack for $27.7 billion

SAN RAMON, Calif. — Business software pioneer Salesforce.com is buying work-chatting service… Continue reading

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases speaks remotely during a Senate Health, Education, Labor and Pensions Committee hearing on Capitol Hill on May 12, 2020 in Washington, DC. The committee is hearing testimony from members of the White House Coronavirus Task Force on how to safely open the country and get America back to work and school. (Win McNamee/Getty Images/TNS)
People magazine reveals its ‘2020 People of the Year’

LOS ANGELES — People magazine has named George Clooney, Dr. Anthony Fauci,… Continue reading

Zeke Thurston, of Big Valley, Alta., rides Lunatic Party during saddle bronc rodeo semi-final action at the Calgary Stampede in Calgary, Sunday, July 14, 2019. Thurston is among five Canadians competing in the 2020 world championship of rodeo Dec. 3-12 in Arlington, Texas. THE CANADIAN PRESS/Jeff McIntosh
Rough ride to National Finals Rodeo for Canadians in pandemic season

Levi Simpson and his horse Stetson are about to trample the turf… Continue reading

Team Manitoba celebrate after defeating Team Ontario to win the Scotties Tournament of Hearts in Moose Jaw, Sask., Sunday, Feb. 23, 2020. Curling Canada wants Calgary's Canada Olympic Park to be a curling hub for the season's top events. THE CANADIAN PRESS/Jonathan Hayward
CP NewsAlert: Calgary facility set to become curling hub during pandemic

CP NewsAlert: Calgary facility set to become curling hub during pandemic

Toronto FC coach Greg Vanney watches late in the second half of the team's MLS Cup soccer match against the Seattle Sounders on Sunday, Nov. 10, 2019, in Seattle. Vanney has stepped down as coach of Toronto FC. THE CANADIAN PRESS/AP Photo-Elaine Thompson
Toronto FC coach Greg Vanney steps down, says it’s the right time to move on

Toronto FC coach Greg Vanney steps down, says it’s the right time to move on

Hamilton Forge FC's Giuliano Frano (8) heads the ball against CD Olimpia's Jorge Benguche (9) during Scotiabank CONCACAF League 2019 second half soccer action in Hamilton, Ontario on Thursday, August 22, 2019. Forge FC looks to win its way into the Scotiabank CONCACAF Champions League on Tuesday when it takes on Haiti's Arcahaie FC in the quarterfinals of the CONCACAF League, a 22-team feeder competition that sends six clubs to CONCACAF's elite club tournament. THE CANADIAN PRESS/Peter Power
Forge FC loses penalty shootout to Haitian side in CONCACAF League quarterfinal

Forge FC loses penalty shootout to Haitian side in CONCACAF League quarterfinal

Public health must balance science and society: former top doctor

Public health must balance science and society: former top doctor

California boat captain indicted in fire that killed 34

California boat captain indicted in fire that killed 34

Most Read