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.

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.

7 Replies

Tengen
Tengen

Korea has gone overboard with this anti-Japan zeal, as evidenced by that guy beating up a random Japanese girl on the street in Seoul last week.

I've watched interviews in both countries about this rift. Generally, the Japanese are calm and say that they want to be friends with Korea. The Koreans, on the other hand, are either livid or quietly worrying that things are going too far. I'm glad they were at least unified in condemning the girl-attack guy, but that's what happens when you rile up the crowd for political gain. It does seem that Moon is doing this at least partly to take heat off himself, to focus anger on an external enemy.

Stuki
Stuki

Ingrained inferiority complexes, are dangerous ground to build political and cultural cohesion on..... Look at Rwanda.....

You'd think Koreans would have outgrown that by now, but as usual, culture tend to linger long past where fundamental performance warrants it.

Of all things China, the whole, underlying "we're going to show those who looked down on us all this time, how Bruce Lee beat up those bigger Westerners," is a lot more concerning, than any nonsense about so called "unfair trade practices."

Maximus_Minimus
Maximus_Minimus

A full-on blockade is like... 100% tariffs or so. Their consumers must be doomed, but wait...they have a manufacturing base.

Carlos_
Carlos_

Well you can hardly blame the Koreans or Chinese for not having a warm fuzzy feeling toward Japan when you consider WWII

Stuki
Stuki

...nor Christians for not having warm and fuzzy feelings towards Jews, considering "they" killed Christ and all.... And all of Europe being mad at the Scandinavians for their behavior during the Viking era.

Carlos_
Carlos_

That's silly my case is one generation removed yours is hundreds

Stuki
Stuki

Am I then to presume God and evolution conspired to hardcode into the laws of the universe that there is a universally meaningful line at 4.74 generations?

Either someone did you harm, or he didn't. If he didn't, what's your problem with him again?

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.