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US/China trade deal at risk as Trump threatens higher tariffs

US/China trade deal at risk as Trump threatens higher tariffs

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The ongoing trade war between China and the US dominated the economic news as developments over the last week suggest an increasing risk that talks will break down and the dispute will escalate. President Trump has threatened to raise tariffs even higher if a deal is not reached, amid conflicting reports on whether progress is being made. Chinese agricultural purchases and tariff rollback seem to be the key sticking points in negotiations. It could quickly deteriorate further if President Trump goes ahead with his scheduled 15% tariff on a variety of consumer goods on December 15, which could be very unpopular with voters. With slowing economic growth in both countries and Trump wanting to avoid a pre-Christmas tariff hike and lift the mood ahead of the US elections next year, there is now more pressure than ever on both sides to come to a resolution, even if it is a temporary one. As things stand, however, the mood appears sour and that has been reflected in investors selling equities and buying “safe haven” government bonds, pushing yields down over the past week.

Closer to home, there was more confirmation that the UK manufacturing sector is struggling. While rebounding slightly in November, its performance was weak, according to a survey by the Confederation of British Industry (CBI). It found that manufacturers’ order books improved compared to October, when they hit their worst level for nine years, but remained below their long-run average. Export order books were also marginally up, but were again historically weak.

Anna Leach, CBI deputy chief economist, said: “While the thick fog of uncertainty from a no deal Brexit has lifted some-what, the manufacturing sector remains under pressure from weak global trade and a subdued domestic economy.”

The same global forces are at work in the US, according to another survey this week. The Federal Reserve Bank of Phil-adelphia's manufacturing sector index improved from a reading of 5.6 for October to 10.4 in November. But the reading for new orders fell from 26.2 to 8.4, alongside a drop in a measure of staffing levels from 32.9 to 21.5. Despite not showing contractionary values, it indicates the sector is still under pressure.

On a global view, economic growth has fallen to its lowest level since the financial crisis, according to research by the Organisation for Economic Co-operation and Development (OECD). In its bi-annual forecasts, it said worldwide GDP growth dropped to 2.9% for 2019, down from 3.6% last year. It forecast that GDP growth will stay steady at 2.9% in 2020. However, the OECD warned that downside risks are high, with the usual suspects of a Chinese economic slow-down, geopolitical tensions, climate change and global trade disputes topping the list.

Asking prices for properties in the UK dipped in November, despite a sharp drop in supply due to falling prices and po-litical uncertainty, according to Rightmove. It said prices for newly-listed properties dropped by 1.3% in November com-pared to October, as the number of new sellers dropped by 14.9% in comparison to a year ago – the largest decline seen since August 2009. Asking prices were flat compared to a year ago.

 

 


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