U.S. manufacturers added 16,000 workers in July, the most of any month since January, but they won’t be able to keep up that momentum unless Washington resolves the trade issues keeping company executives awake at night.
Congressional approval of the U.S.-Mexico-Canada Agreement, the Trump administration’s revision of the Clinton-era North American Free Trade Agreement, and securing a pact with China to end a trade war “are necessary ingredients to ensuring manufacturers in the United States can continue to prosper and grow,” said Chad Moutray, chief economist with the National Association of Manufacturers.
The industry’s outlook increases pressure on Trump, who promised during his 2016 campaign to buoy U.S. factories and has been criticized for instead imposing tariffs on imported goods that crimp profits for not only manufacturers, but farmers and retailers as well.
With a little more than a year remaining until voters decide whether to grant him a second term, Trump opted Thursday to stick with his strategy rather than back away, promising 10% duties on the remaining $300 billion in Chinese imports not covered under previous levies of 25%.
Businesses and investors reacted with dismay, and economists said Friday that U.S. trade conflicts — which also encompass threatened levies on Indian and Vietnamese imports, automobiles, and parts and French wines — represent an increasing threat to the labor market.
The tactic “will only inflict greater pain on American businesses, farmers, workers and consumers, and undermine an otherwise strong U.S. economy,” said Myron Brilliant, head of International Affairs at the U.S. Chamber of Commerce. “We urge the two sides to recommit to achieving progress in the very near term before these new tariffs come into effect. “
BlackRock, the world’s largest money manager, predicted even before the most recent escalation that the trade war may drag U.S. economic growth to less than 2%, less than half Trump’s oft-stated target of 4% or more.
“The U.S. has become an exporter of geopolitical and economic uncertainty as the administration implements its ‘America First’ approach,” Tom Donilon, chairman of the BlackRock Investment Institute, wrote in the firm’s midyear outlook. “Tough rhetoric from both the U.S. and China, tit-for-tat tariffs and tensions over U.S. restrictions on Chinese tech signal an economic conflict that will be difficult to meaningfully resolve.”
At enginemaker Cummins Inc., the costs of the global disputes had topped savings from sweeping GOP-led tax cuts by mid-June, and CEO Tom Linebarger had heard similar reports from the heads of other companies in his role as chairman of the Business Roundtable’s trade committee.
Manufacturing payrolls reflect the struggles. July’s growth (which the administration was quick to highlight) compares with a decline of 3,000 positions in March and gains of less than 10,000 in three of the seven previous months. Hiring began to accelerate in June, with a gain of 12,000 workers.
It “suggests that through the summer, manufacturing shrugged off the trade tensions, but now, given the latest round of trade escalation, you have to wonder how sustainable, how robust, those gains will be,” Joseph Song, an economist with Bank of America, told the Washington Examiner. “There’s a lot of uncertainty brewing in the future.”
The industry appeared to “strengthen a bit after having come to a near-standstill from March through May,” said Jonathan Millar, an economist with British lender Barclays Plc, but “uncertainty regarding trade policy and global growth” point to ongoing risks of weakening.
While Trump has threatened new China tariffs before and pulled back, “it would hurt American consumers and threaten further harm to U.S. businesses and workers” if they go into effect, said the Business Roundtable, which represents CEOs of the 200 largest U.S. companies. “Rather than escalating tariffs, both countries should focus on negotiations to address long-standing structural issues in China and to take tariffs down.”
While some companies have moved manufacturing away from China to other Asian countries, that could raise production and shipping costs and lead to output glitches in new untested operations, said David Silverman, a senior director at debt-ratings firm Fitch.
“Tariffs are expected to have a generally negative impact on both consumer spending” and the companies whose products they buy and stores they frequent, he added. “Those cost increases will be borne across manufacturers, retailers, and consumers.”
