Fewer Jobs
09/11/2019 08:51 am MYT
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"The 7.024 mln job openings in Sep make for the lowest level reached so far in 2019; the last time the same thing happened was in 2007."

It has been reported that American and Chinese officials are considering rolling back some tariffs to complete the partial trade agreement. The US has already put off tariff hikes from 25% to 30% on US$250 bln of Chinese imports that were scheduled to take effect in Oct, and has suggested it may put off tariffs on another US$160 bln in Chinese imports set to take effect on 15 Dec. China wants the removal of 15% tariffs on US$125 bln worth of goods that went into effect on 1 Sep.

Although the trade talks seem to be moving in the right direction, trade woes very clearly remain at the forefront of economic news and on the minds of investors and policymakers all over the world. Average tariffs on Chinese imports now stand at 21%, up from only 3% in Mar 2018. The damage from the still-limited US-China trade war is unambiguous. US imports from China plunged a sharp US$53 bln in the Jan-Sep 2019 period, a stark contrast with the same period last year. US exports to China were down US$14.5 bln in the same time frame. Although the absolute figure may imply that the hit on China is more painful, the truth is that the damage suffered by the US is more severe. Why? US exports to China have plunged 15.5% compared with the same period a year ago, a bigger drop than the 13.5% fall for China’s exports to the US. The real lesson to keep in mind from the Trump-led trade war against China is that trade wars are not easy to win and hurt all parties.

Although ‘phase one’ of the US-China trade deal seems inevitable, one can never tell with a former The Apprentice mastermind whose favourite pastime is to mindlessly offer unsolicited Tweets. If the prevailing protectionist mood in the US and Europe worsens and a tit-for-tat unfolds, the global economy will quickly slide down further, dragging every economy with it. The protectionist mood in Europe is as fierce as it is in the United States, if not fiercer. Lurking in the backdrop is possibly more trade conflict. This month, the US is imposing new tariffs on US$7.5 bln worth of imports from Europe, which were legitimised by the WTO. On top of that, fears are growing that the US Congress may not approve the US-MCA Trade Agreement, the successor to the North American Free Trade Agreement (NAFTA). The Western media has been focusing on the US-China trade talk but the two latter trade matters, which have received far less media attention, are no less serious.

Europe is now being “tariff-ied” by the United States.  US-MCA may not be approved. No wonder businesses are scared to invest. No economic region is safe. (Source: Shutterstock)

Meanwhile, the US economy is not in the pinkest of health. Even Trump is worried. Her manufacturing sector is already suffering from the US-led trade war against China. On the other hand, the ISM reported that its service index grew to 54.7% last month, up from 52.6% in Sep, reassuring investors that the largest segment of the US economy is not contracting yet. Then, total nonfarm payroll employment rose by 128,000 in Oct, better than expected, with the US unemployment rate unchanged at 3.6%. However, not everything is rosy in the US job market. The number of job openings in the United States fell in Sep to 7.02 mln from 7.3 mln in Aug (figure 1).

The number of job openings in the United States hit rock bottom in mid-2009 and has been recovering since then. In 2012, the recovery in job openings paused, which it did again in 2015 and 2016. What has happened in 2019 is different. The number of job openings has been falling steadily throughout the year (table 1). The 7.024 mln job openings in Sep make for the lowest level reached so far in 2019; the last time the same thing happened was in 2007. The number of job openings in the United States peaked at 4.75 mln in Jan 2007 and fell all the way to 2.264 mln in Jul 2009. We all know what happened to the US economy back then.

Will there be a recession in the US next year? While one cannot say yes, it is also difficult to say no with a high degree of confidence. Next year is election year. However, we may have Trump impeached. And of course, ‘phase one’ of the US-China trade deal may not happen after all. For now, i Capital is retaining its short-term outlook of the NYSE with a range of 2,650 – 3,100 for the S&P 500. i Capital also retains its medium-term and long-term outlook of the S&P 500 as highly uncertain for now.

Note from Publisher
Although India pulled out at the last minute, the 15-member Regional Comprehensive Economic Partnership (RCEP) agreement will be ready for signing next year. RCEP is a free trade agreement among the 10-member ASEAN, China, Japan, South Korea, Australia and New Zealand. It is to be the world’s largest free trade bloc. The 15 participating countries make up nearly a third of the world’s population and GDP. With the protectionist Trump administration terrorizing every country in the world with tariffs, a successful conclusion of RCEP is of utmost importance.

In addition, it is the first time that China, South Korea, and Japan are in the same free trade bloc, potentially paving the way for the illusive free trade agreement among the three East Asian economic powerhouses to be realized. i Capital has written many times about the immense potentials of a China-South Korea-Japan economic alliance. It would provide a real counter balance to the US and Europe, which have dominated the world since the first industrial revolution.

The world will definitely be more peaceful when no single super power is allowed to bulldoze its way through the rest of the world. Check and balance would promote justice, responsibility, and transparency.
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