
Is the Trade War Driving a Slowdown in the US Economy?
According to data released by the US Commerce Department, the US economy is showing signs of weakness in growth. The US trade deficit declined by 3.6% in September to touch $70.4 billion, owing to the heightened trade tensions with China which pulled down both imports and exports.
Exports fell 1.6% lower while imports slid by 2.3%. While the decline in exports was driven by lower shipments of soybean and automobiles, the decline in imports paints a worrying picture of the state of the US economy. Weakening imports point to reduced consumer spending and capital expenditure, which is a key indicator of business confidence.
Lending further support to the growing concerns, the US Commerce Department’s data reveals that wholesale retail inventories declined by 0.3% in September after a stagnation in the previous month. Following the release of this data, Atlanta Fed has revised its GDP growth forecasts lower, to 1.7% YoY for Q3 2019. In comparison, Q2 GDP grew at 2.0% while Q1 saw the GDP grow at 3.1%.
Economists remain skeptical of the partial trade deal which could be signed between the US and China in the coming weeks. Even though the announcement of the “Phase 1” trade deal did bring some cheer to global markets initially, economists anticipate that its effects would take too much time and may not be enough to turn the sentiment around completely. Rising protectionist trade policies around the world would only serve to escalate tensions and reduce the contribution of trade in global GDP, which could have far reaching effects on industrial production, business confidence and consumer consumption.