Trade woes continue despite strong economy tti, inc.

Business continues at a strong clip up and down the supply channel, despite growing concerns about the long-term effects of the Trump administration’s trade policies. A smattering of economic data released early this month underscored the positive state of the U.S. economy heading into the third quarter while also emphasizing the potential fallout from tariff-related activity that continues to heat up. The threat of rising costs and declining exports remain long-term concerns for manufacturing and supply chain-related businesses, even as they deal with the current busy climate and an increasing number of orders.

“While many manufacturers are expressing concerns about trade wars, it doesn’t seem that it has slowed their need for additional capacity, and orders for new capital equipment remain strong,” according to Doug Woods, president of AMT-The Association for Manufacturing Technology, which represents companies that design, build, sell and support the machine tools and related equipment, accessories and tooling that keep manufacturing facilities up and running.

“Trade issues and supply chain delays are certain to have an impact on the equipment market as we head into the fall,” Woods added. “AMT supports a quick and fair conclusion to the issues with our trading partners as exports are important to all manufacturers, and in the case of our members, represent more than a third of their annual output.”

Trade policy concerns have been simmering since the Trump administration’s 25 percent tariffs on steel and aluminum imports took effect earlier this year. Among the latest moves, the United States plans to begin collecting 25 percent extra in tariffs on $16 billion worth of Chinese goods this month, a move that China has said it will match. Representatives of both governments were set to meet this month to continue trade negotiations, as industry watchers remained wary of the escalating trade war.

“We are already seeing price increases that will be felt by consumers and working families, and additional retaliatory tariffs could close major markets off to U.S. exports,” Jay Timmons, president and CEO of the National Association of Manufacturers, said in response to the implementation of an additional $16 billion in U.S. tariffs on China earlier this month. “Manufacturing workers are feeling the pain of tariffs, as are American consumers. If the point is to put pressure on China to change its actions, tariffs paid by American businesses and consumers are simply not effective.”

Industrial production data released this month boosted the current growth story, but also indicated slowing conditions. U.S. industrial output rose slightly from June to July – just 0.1 percent – after rising at an average pace of 0.5 percent over the previous five months, according to Federal Reserve data released August 14. The manufacturing sector spurred the growth while utilities and mining were a drag: manufacturing production increased 0.3 percent, the output of utilities moved down 0.5 percent, and, after posting five consecutive months of growth, the index for mining declined 0.3 percent.

All of this comes on the heels of a cautious outlook cited by the Institute for Supply Management early in the month. The group’s Purchasing Managers Index remained firmly in growth territory in July, but slowed compared to June as procurement professionals cited growing concern over U.S. tariffs and retaliatory actions by other countries. The July PMI registered 58.1, a 2 percent decline compared to June, but still well above the 50-point mark indicating growth in the manufacturing sector. ISM spokesman Timothy R. Fiore noted in the report that procurement professionals remain “… overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business.”

Despite the concerns, the economy is still likely to finish the year on a high note. On August 16, the Fannie Mae Economic and Strategic Research Group (ESR Group) said it revised upward its full-year 2018 economic growth forecast to 3 percent, from 2.8 percent forecast in an earlier report. The researcher said it expects third- and fourth-quarter inventory restocking to outweigh slowing consumer spending and a decline in net exports. But like others, ESR Group continues to cite trade policy as a key source of downside risk.

“Trade policy remains a key source of downside risk to our forecast,” ESR Group said in its August 2018 Economic Outlook. “Trade tensions between the U.S. and the European Union appear to be de-escalating, but tensions with China have intensified. If proposed U.S. tariffs, including a 25 percent levy on $200 billion in imported Chinese goods, take effect over the next several months, China will likely retaliate with tariffs and other measures that restrict trade. Although the direct cost of the already-imposed tariffs is small at the national level, indirect costs from uncertain trade policy are probably mounting. Uncertainty about access to imported inputs and foreign markets, as well as negative impacts from supply chain disruptions, are likely weighing on businesses’ decisions to invest and hire.”