Global Recession Coming: Trump's Trade War Takes Toll on South Korea and Japan

-edited

The economies of China’s neighbors suffer, starting with manufacturers of high-tech equipment.

On Sunday, Trump decided to go ahead with new tariffs of 15% on clothing and other Chinese imports totally about $111 billion. The new tariffs are in addition to the 25% tariffs previously imposed on about $250 billion of Chinese imports.

No one should be surprised that the knock-on impact of Trump's Trade War Hurts South Korea and Japan

South Korea said Sunday that its exports to China fell 21.3% in August compared with the same month a year earlier, driving an overall 13.6% decline in exports. And Japan said Monday that capital spending by the country’s manufacturers fell 6.9% in the April-June quarter, the first decline in two years, as companies grappled with a nearly double-digit decline in exports to China.

“Given that there is no sign of recovery in Japan’s exports due to the U.S.-China trade friction, the downtrend in manufacturers’ profits and capital expenditures is expected to continue,” said NLI Research Institute analyst Taro Saito.

Even after decades of growing economic interdependence, exports to China by themselves account for a small portion of the total output of countries like Japan and South Korea. In Japan’s case, exports to China equaled 2.8% of gross domestic product in the year ended March 2019. But a falloff in exports could trigger a broader downward cycle by leading companies to slash investment or by making consumers more cautious.

Manufacturing Recession

On August 2, I commented Global Manufacturing Recession Started: Trump's China Tariffs Made Matters Worse

It is increasingly clear that is the correct view. But what about a real recession?

How Much Lead Time Do You Expect?

Once again please consider Manufacturing Recessions vs Real Recessions: How Much Lead Time Do You Expect?

For further discussion, please see Debunking the Myth “Consumer Spending is 67% of GDP”.

Mike "Mish" Shedlock

Comments (41)
No. 1-8
Country Bob
Country Bob

I don't know if Trump's solution is the best possible idea. But I do know that the status quo (shipping jobs to China without creating new ones here, letting China steal intellectual property, while feeding the Federal Reserve's parasite class) was not working for most US citizens.

When you are at the bottom of a deep hole, you have to stop digging it deeper. Only a fool (aka the political class) would suggest continuing to dig as though everything is OK.

I've heard the explanations from college professors about supposedly free trade, but I note they all have tenure and cannot be fired no matter how ridiculous a theory they write. The people paying for their ideas (and paying their tuition!) do not have that luxury.

What has been going on the past few decades is not free trade, its lopsided trade. Its China stealing intellectual property, while the Fed steals our pensions to pay for it.

24 Replies

Augustthegreat
Augustthegreat

When you buy things from Walmart, are you stealing?

Mish
Mish

Editor

"When you buy things from Walmart, are you stealing?"

That's precisely what most of this Walmart stuff is - Junk There is no stealing involved with junk.

Jackula
Jackula

The Chinese now make a lot of stuff that is not junk

Mish
Mish

Editor

Yes they do. And partially thanks to Trump, the junk will move elsewhere while China starts to compete with non-junk!

Country Bob
Country Bob

I accused the Chinese of stealing INTELLECTUAL PROPERTY not shop lifting from Walmart.

Not sure how we could measure this, but I suspect Amazon sells a lot more Chinese made products than does Walmart. Alexa and firetablets, for example, are manufactured in China.

I don't hear the traditional political establishment complaining about Amazon's sweat shops in China, nor their sweat shop fulfillment centers in the US.

And Walmart has done more to lower the out-of-pocket health care expenses of middle class America, than did Obamacare. Obamacare tripled my insurance premium, Walmart sells $4 generic medications. Another reason not to trust the traditional politicians.

Country Bob
Country Bob

I would also add that the US education system is turning out a very low quality product. Too many high school grads can't balance their checkbook or write a business letter. Too many college grads have thousands in debt but still aren't qualified to do much beyond coffee barista. Many others are employed in fields that have nothing to do with their major.

All the presidents in recent memory have made speeches about the growing importance of STEM majors. But all the presidents have invited college sports teams to the White House. Talking about McDonalds vs White House chef food really misses the point about WHO gets invited... its not the STEM students.

How many cities are issuing billions in municipal bonds to build new sports stadiums? But those same cities balk at providing similar incentives for manufacturing jobs. Billions in tax free financing for sports stadiums, higher taxes for factories. This misallocation was going on for decades before Trump.

Tengen
Tengen

I'm glad you mention the Fed as well, but their contributions to the toxic status quo Americans loathe is far, FAR greater than Chinese manufacturing. The central bankers have encouraged currency devaluation, huge deficits, asset stripping corporations, and asset inflation, which makes living/manufacturing in the US far more expensive than it should be. Without extreme Fed meddling, things like housing and education would be much cheaper for Americans, for starters. Companies would be encouraged to invest in their own people rather stock buybacks to feather executive nests. The Fed has molded a world where nobody cares about tomorrow.

Trump's strategy achieves very little, since closing factories in China to move to other low cost locales like Vietnam is meaningless. We're going to run big trade deficits no matter who manufactures for us, and until we deal with the banksters no change in trade policy can have a positive impact.

KidHorn
KidHorn

Spot on about education. The problem is the schools have to lower standards. Otherwise they would be full of 20 year old black and hispanic kids. I live in one of the best school districts in the country. Most black kids don't even bother going to school and they graduate. The same with hispanic kids, but to a lesser degree. The white and asian kids go to school and take separate classes from the others. They call them AP classes. They get a good education and go on to college and do well. The others complain about how they aren't given the same opportunities.

Carlos_
Carlos_

Too bad your opinions are not backed by "pesky" facts: "Overall, the total number of degrees awarded in STEM fields increased at every level between 2000 and 2015. The number of master’s degrees has shown the largest growth, increasing by nearly 88 percent over the 15-year period"

"NCSES notes that at the master’s level, the proportion of STEM degrees earned by students from historically underrepresented racial and ethnic groups increased from 14 percent to 21 percent in 2000 to 2015 (NSB, 2018h7), with Hispanic and Latino/a students showing the largest growth at nearly 202 percent. AIAN students, on the other hand, experienced the slowest rate of growth at the master’s level overall, at close to 43 percent."

Opinions without facts are worthless. https://www.nap.edu/read/25038/chapter/4#39

davebarnes
davebarnes

"high school grads can't balance their checkbook" Are you serious? I have not balanced my checkbook in 40+ years. And, now, I only write 4 checks a year (One per quarter for estimated taxes)

SmokeyIX
SmokeyIX

There are other factors too. Japan stopped selling materials to Korea that are needed for semiconductors, which has caused problems in the short term until Korea can find other suppliers. Japan threw away a huge market for these materials. It was a lose-lose. Here in Korea, there's an active boycott of Japan. There are NO Japan signs up everywhere, airlines are cutting flights to Japan, and so on. Sales of Japanese goods have plummeted.

Sechel
Sechel

The United States has been the glue that helped bond South Korea and Japan. With Trump not able to take the lead on any sort of international alliance and cooperation issue I believe the fall-out between these two Asian allies of the U.S. is a natural outcome and probably much to the delight of China and North Korea. First the U.S. pulls out of TPP and now this. Trump also failing to secure his preferred bilateral trade deal with Japan. Spirit of cooperation is dead. Mattis is right. U.S. is stronger with allies than without.

Matt3
Matt3

How. 6.9% drop and 2.8% of GDP!! Do that math. That would be a drop in GDP of 0.19%!! So the point of the article is that this a tragic downturn and we should all be scared? Count me as skeptical.

Carl_R
Carl_R

In the 1930's worldwide trade didn't just plummet all at once. It gradually dropped, quarter after quarter, year after year, from 1929 until 1933. Once these cycles start, they can take a long time to reverse.