The Trade Conflict Is Already Showing Up In The Global Macro Economic Statistics
There are numerous signs that the trade conflict is starting to reshape global economic events in fundamental ways.
Part of this can be seen in the bond market which is signalling that the trade war could be a threat to growth in the United States and to global markets. The signs are also there in the equity market, which is displaying significant volatility based on the latest rumours on the success or lack of success of a trade agreement between the US and China.
And while the tariffs have not yet compelled businesses to return large-scale manufacturing to the United States, where labour and other costs tend to be much higher than in China and other overseas manufacturing hubs, they have incented American companies to shift their supply chains away from China.
For example, in April US imports and exports slumped and the slowdown in industrial production became more pronounced.
Industrial production in the United States increased 0.9% year-on-year in April of 2019, slowing from a 2.3% increase in the previous month. This represented the smallest increase in industrial output since February 2017.
Turning to international manufacturing intentions, Markit Economics survey data indicate that the pace of global expansion fell to its lowest in two-and-a-half years in April, reflecting both stagnant manufacturing and slower service sector growth.
Output and new orders barely rose in April, with global exports dropping for a fifth successive month. Business sentiment also sank to its lowest level since June 2016 due to uncertainty and trade wars.
As the following charts illustrate, there is a tight correlation between global manufacturing and global GDP growth. Recently these indicators have been highlighting slower international growth ahead.