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Trump ups the ante after China retaliates to tariff hike

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Trade tensions dominated again this week. After the US imposed tariffs of 25% tariffs on $200bn of Chinese exports to the US, China hit back with tariff hikes on $60bn of US exports to China. Trump further ratcheted up tensions by adding Huawei, the world’s largest telecoms equipment manufacturer, to its “Entity List”, which effectively bans the company from acquiring technology from US firms.

Separately, President Trump declared a national emergency to protect US telecoms networks from “foreign adversaries”. It bans Chinese firms such as Huawei and ZTE from selling their products in the US. The order says technology or services “designed, developed, manufactured or supplied” by US rival companies “augments the ability of foreign adversaries to create and exploit vulnerabilities in information and communications technology and services, with potentially catastrophic effects.”

The data released from around the world was mixed but, on balance, it was somewhat downbeat in terms of the direction of travel for the global economy. China, the world’s second-largest economy, reported that retail sales grew at their slowest pace in almost 16 years in April, alongside a disappointing reading on industrial output. The data let to suggestions from analysts that the stimulus measures instigated to ward off a slowdown were wearing off, just as the trade spat with the US was stepping up a gear.

Retail sales grew at an annualised rate of 7.2% last month, according to the National Bureau of Statistics. This was the slowest pace since 2003, and comes as China is trying to rebalance its economy to rely more on domestic demand than exports. Growth in industrial production also fell to 5.4%, the worst reading since November, which was the lowest since the financial crisis.

It hasn’t all been plain sailing in the US either: American retail sales fell last month, with sales of cars and building materials among those hardest hit. According to the Department of Commerce, retail sales volumes dropped by 0.2% month-on-month in seasonally-adjusted terms, although they edged higher by 0.1% if automobile sales are stripped out.

Closer to home, Eurozone industrial production fell for a second consecutive month in March. Output declined in France and Italy but recovered in Germany, the region’s key economy. Eurostat reported that output in the 19 countries of the Eurozone dropped by 0.3% in the month, and by 0.6% on an annualised basis. 

There was better news in the UK, as employment data demonstrated the labour market’s resilience to Brexit uncertainties. The UK employment rate remained at a record high in the three months to March, according to the Office for National Statistics (ONS). However, despite the tight labour market, wage growth fell. Wages rose by 3.2% in the three months to March, down on the previous month’s reading of 3.5% but still higher than inflation.

The number of people in work rose by 99,000 to reach a new record high of 32.7m, while the employment rate remained at 76.1% of the working-age population - the joint highest figure on record. UK unemployment fell 3.8% to 1.3 million – 119,000 fewer than a year ago. Another positive was that UK business investment rose by 0.5% in the first quarter compared with the last quarter of last year. It ends a year of declining business investment which has been a major concern for the UK economy.

 

 


Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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