Thu, Dec 13, 2018 - Page 10 News List

Global economic growth begins to fray

CRACKS SHOWING:Many are worried that tariffs are already hurting the US economy, while Chinese manufacturers have said they feel as if they are entering a slowdown


US farmers have been forced to warehouse a bumper crop of soybeans, or sell at a loss, while a Minnesota-based medical supply company is considering shipping production overseas amid growing uncertainty.

Surveys of US business and consumer sentiment continued to show economic optimism going into next year, but cracks are beginning to form — in the US and around the world — with US President Donald Trump’s trade conflict the major source of concern.

The IMF is forecasting respectable global growth of 3.7 percent next year, but the world’s two largest economies — the US and China — are starting to cool.

“The mood is that of uncertainty and the impact in China, in particular, is beginning to be noticed,” MedSource Labs chief executive officer Todd Fagley said.

“We have been told by some local Chinese manufacturers that it ‘feels’ like they’re entering a slowdown and that they are being hurt already due to higher export costs and overcapacity,” he said.

Signs the US expansion might have peaked shook global stock markets in recent weeks and Wall Street’s main indices have erased all the gains posted this year.

The US recovery is soon to become the longest in recorded history, but the boost provided from last year’s tax cuts is dwindling. Rising interest rates and a shortage of workers are crimping the housing market.

At the same time, the trade conflict threatens to undercut growth, hamper investment and spur US inflation.

“Growth momentum likely peaked in the second quarter,” S&P Global Ratings economists said, but the US is “more likely to see a slowdown than a contraction in the near term.”

Amid the uncertainty, worries that had been bubbling in the background, drowned out by the overwhelming good news, are now rising to the surface: the surge of borrowing by heavily indebted companies, the huge weight of US student loan debt and the effect of rising interest rates on home buying.

Meanwhile, Europe faces political and economic upheaval and Japan remains in a long-term funk.

The central danger to the global outlook is the US trade conflict with China, due to the potential to spill over to the rest of the world.

The dispute threatens to derail, halt or shift hundreds of billions of dollars in global trade, but Trump is also threatening tariffs on auto imports.

Steep US tariffs on steel and aluminum have already hit the bottom line of US manufacturers.

The IMF warns a continued escalation of the tariff threats could cut 0.8 percentage points off global growth.

“It’s vitally important, because trade is a major engine for growth,” IMF managing director Christine Lagarde said in a recent television appearance.

While many officials and executives agree with the Trump administration’s complaints about China’s trade policies — notably forced technology transfer — they worry about his aggressive strategy, and businesses, farmers and ranchers are already feeling the pain.

“Our concern is the cure is worse than the disease,” said Jake Colvin, a vice president of the National Foreign Trade Council. “Tariffs are already having a negative effect on the real economy.”

The shape of any deal Washington and Beijing could agree on is also unclear.

William Reinsch, a trade expert with the Center for Strategic and International Studies in Washington, described the negotiations as the “irresistible force and the immovable object.”

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