Trade War’s Pain May Deepen Even as Tensions Abate



Ben Casselman, Niraj Chokshi and Jim Tankersley | New York Times

The trade war is de-escalating, at least for now. But the economic damage it caused could be far from over.

Two years of tit-for-tat tariffs and on-again-off-again trade talks have left American farmers reeling. The manufacturing sector is in a recession, albeit a relatively mild one, and factory employment declined in December after rising slowly for most of last year. And in recent months, there have been signs that the damage is spreading: Railroads and trucking companies have been cutting jobs, and consumers — at least in the parts of the country most affected by the trade disputes — may be pulling back as well.

“Even if manufacturing started to recover, there’s still going to be some continuing cutbacks in nonmanufacturing industries as they start to respond,” said Michael Hicks, an economist at Ball State University in Indiana. “The full effect of the layoffs hasn’t really been transmitted to the full economy yet.”

Other factors are also hurting manufacturing. A global economic slowdown — caused partly, but not entirely, by trade tensions — has curbed demand for American products abroad. Falling energy prices have led to a pullback in oil drilling and reduced the need for oil field equipment. Boeing’s recent decision to halt production of its troubled 737 Max aircraft has sent shock waves through the company’s vast supply chain; economists at Moody’s Analytics estimate that the shutdown could shave half a percentage point off first-quarter economic growth.

But economists say there is little doubt that trade has been the driving force of the industrial slowdown, with implications for the rest of the economy. The spillover effects are clearest in the transportation sector, where business slowed for railroads and trucking companies as trade slumped last year.

Freight volumes fell 7.9 percent in December from a year earlier, the greatest year-over-year decline since the recession a decade ago, according to data from Cass Information Systems. More than 10,000 jobs were cut by transportation and warehouse employers in December, the biggest drop in nearly four years.

Job growth has slowed sharply — from an annual rate of 2.6 percent at the start of 2019 to 1.3 percent at the end — in so-called middle wage sectors that include mining, construction and transportation, according to calculations by Nick Bunker, an economist at the Indeed Hiring Lab. That slowdown is driving the deceleration of job growth across the American economy.

The trade war hit the trucking industry at a vulnerable moment, said Aaron Terrazas, director of economic research at Convoy, a shipping-focused technology company. Trucking companies expanded aggressively in recent years, adding trucks and drivers more quickly than demand was growing. The resulting glut pushed down prices, just as the slowdown in trade began eating into demand.

“There was almost this one-two punch where we were having this normal supply correction in the market and subsequently we got hit by the trade war,” Mr. Terrazas said.

Mr. Trump and his allies have said the trade deals will deliver a jolt to the economy and lead to faster growth this year. But economists are skeptical. Wall Street analysts expect growth, which is already cooling, to slow further in early 2020, and few have marked up their estimates in response to the trade announcements.

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