Manufacturing Activity Drops as US Still Waits on New China Deal

Manufacturing activity in the United States contracted last month at a pace not seen in roughly ten years. According to data released on the first Friday of the New Year, the prolonged damage from President Trump’s trade war with China could continue to linger, even if the two countries manage to sign a new trade deal. 

The latest Institute for Supply Management index shows that manufacturing activity definitely dropped to 47.2 in December. This is actually the lowest such reading since June of 2009; and more notably it is the fifth consecutive month of contraction.  It may be important to note that a reading below 50 suggests a contraction. 

Economists warn that this report is a weak one. More importantly, the data suggests near-term recovery could be difficult to achieve.  

All of this comes, of course, after many long months of waiting for US President Trump to negotiate a better trade deal with China.  It was last October that the White House claimed China had agreed to significantly boost its purchasing of US agricultural goods while relaxing its limits on foreign investments.  The hope was that this effort would create more opportunities for investment banks based in the US to enter a quickly growing market.  

In exchange for this proposal, then, Trump slashed tariffs on $112 billion worth of Chinese imports; cutting duties in half: from 15 percent to 7.5 percent.  President Trump also suspended tariffs that had been previously expected to affect an additional $160 billion in Chinese goods. 

Overall, global trade continues to be a cross-industry issue but we can see many signs that several industry sectors are set to improve if there is ever a finalization of the phase-one trade agreement between the United States and China.  Indeed, this has all lead to stagnant economic growth which then transfers to consumers in the form of higher prices.