A worker cuts a steel coil at the steel industry PAO in Novolipetsk Steel in Farrell, Pennsylvania, March 9, 2018.
Aaron Josefczyk | Reuters
Consumer and industrial activity in both the US and China slowed down in April, even before the world's two largest economies entered the latest phase of an escalating trade war that could take a bit of global growth.
"The real message today is that both economic data from the US and China have disappointed. They are like two boys in the sandbox spitting on each other, and it can get much worse," says Marc Chandler, global market strategist at Bannockburn Global Forex
The latest round of fees announced by President Donald Trump and China's President Xi Jinping raised the efforts and potential economic battles of both economies, while Trump increased the $ 200 billion in goods to 25% from 1
Economists are looking at 0.4 to 0.5% on China's GDP and about 0.1% in the United States from the higher fees. Strategas Research estimates that the higher tariffs would lower US growth by 0, 1% for every two months, the increased duties are in place, or 0.5% per annum.
Trump also threatened 25% tariffs on an additional $ 325 billion in Chinese goods, which economists could say Chinese sales and send prices higher for American consumers. The effect of these tariffs would be even greater on GDP.
China's retail sales increased by 7.2% in April, the slowest rate in 16 years and less than March 8.7% and forecasts of 8.6%. China's April industrial production increased by 5.4%, less than 6.5% expected or 8.5% profit in March.
"This is the first part of cleaner data we get, and it paints a much less rosy picture of the economy than many thought happens," says Gareth Leather of Capital Economics. The seasonal factors of the leather may have masked the weakness of the march data, which showed some improvement and appeared to be signs of green shoots and recovery. "This really disappears these hopes at the moment."
U.S. Retail sales fell by 0.2% in April, from the surplus of 1.7% in March. Car sales declined 1.1% last month, while sales of electronics and appliances stores lost 1.3%. Economists had expected a 0.2% gain in monthly sales data, which is important as it reflects consumer health, about 70% of the US economy.
U.S. Industrial production, which reflects total production at factories, tools and mines, decreased by 0.5% after an increase of 0.2% in March. Manufacturing production fell 0.5%, with a decline of 2.6% in motor vehicles and parts, the third decrease in four months and the latest manufacturing report to show softness.
"Autos had a weird turn as a result of redundant inventories," says Michelle Meyer, CFO of US bank Merrill Lynch. "I will pay close attention to the manufacturing data, the survey data, the confidence measures. It will be very important to see how the economy is going around the escalation. Manufacturing has already weakened." She said that manufacturing has fallen away since peaking last summer.
She said that the commercial war has affected the manufacturing sector, with about 59% of the companies in the semi-annual survey on ISM saying that tariffs have led to an increase in the price of goods produced.
Meyer described the weaker retail data in April as "noise," but said it would see if the tariffs were introduced at $ 325 billion in goods as they would directly affect many consumer products. Manufacturers have reported the effect of tariffs, with 59% saying that production costs rose as a result.
The markets responded to news from both countries by increasing expectations of the central bank and other political easing. US mutual funds futures signaled expectations of more than one quarterly fall this year, while China's stock markets rallied with expectations of more fiscal and monetary stimulus.
"Both economies softened before the tariff ended, but what is interesting is still that we are not talking about recession levels. If China grows less than 6%, it is a big deal," says Chandler. average 2.4% in the first half of the year.
"I think the chances of the Fed having to cut prices before the end of the year have clearly increased in view of the trade war. It's still not my point of departure. I think the Fed must be careful when responding to today's trading tensions. It is not obvious how long it will be and how it will play out in the real economy, says Meyer.
Trump has repeatedly urged the Fed to cut interest rates, including on Tuesday when he said China is likely to cut interest rates, and if the US did so well, it would be "game over".
Leather said if Trump goes through with the next round fee, they may stop becoming more harmful to US consumers than to China, as many of the goods cannot be obtained elsewhere. The first round of tariffs did not hurt much for China, and its economy has gone down for years, he said.
"It will affect China" if fees of $ 325 billion in goods are being implemented, Leather says. "But not as much as people think. The influence on the US will be more." He said China's problems are long-lasting.
"If you look at Q1, China's exports to the US have underperformed the rest of the world by 13%, and they pretty much match pretty much. They are locked in. It seems to have some impact there, but if you look at China's Exports to the US as a share of GDP, it is about 3%. Thirteen percent of 3% is very small. Part of the slowdown in China is related to trade, but a very small percentage, "he said.