US recession risk at 50 per cent, says geopolitical strategist
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ABC News
an hour ago
- ABC News
Trump's new tariffs reveal somewhat vindictive and irrational strategy
Myanmar, Laos, Serbia and Syria. They seem unlikely targets for some of the most aggressive moves in Donald Trump's war on the global trading system. Yet these small and troubled nations are among those facing the highest tariffs from the United States in the wake of its president's slew of August 1 trade announcements. Myanmar, which mostly exports clothing to the US, and Laos, which predominantly exports electronics equipment, now face 40 per cent tariffs on the goods they sell to America, while Serbia will be hit with a 35 per cent tariff and Syria 41 per cent. None of these countries have been notably the subject of the same public Trumpian wrath as, say, Canada (35 per cent) and Brazil (50 per cent) since "Liberation Day" on April 2. And the country which is arguably the biggest target or threat to the US in terms of world trade — China — was not mentioned at all but will be engaged with in further negotiations. Having said that, there is still a 40 per cent on goods regarded as being "trans-shipped" to avoid higher tariffs (for which read "trans-shipped from China"). And the tough treatment on Friday of South-East Asian nations which are manufacturing hubs for China must be seen as an indirect assault on the regional economic superpower. In Australia, the focus on Trump's tariff announcements on Friday (AEST) was of course primarily on the "relatively" good news that we were still only facing a 10 per cent tariff, when the spectre of a 15 or 25 per cent generic rate had been mentioned by the US president in the days leading up to the announcement. The outcome somewhat took the wind out of the sails of those who have been criticising the prime minister for not getting to the White House, or into any meeting with Trump, and instead boosted the argument that there was little to be lost from staying out of his uniquely coiffed hair. Australia will enjoy the 10 per cent tariff rate being applied to those countries that buy more goods from the US than they export to America: that is, that run a trade surplus with one of the world's biggest economies. The new tariff regime starts at 10 per cent, based on trade balance, lifts to a 15 per cent rate for countries that only have a small deficit, while those with big deficits, that haven't negotiated, or that have otherwise incurred the ire of the president face this much wider and more unpredictable range of outcomes. It's worth pausing for a moment of silence to mark the momentous shift in global affairs that the Friday announcement confirms: the shift not just from a free trade ambition to a protectionist one by the United States, but a shift to a system of fairly arbitrary, vindictive and sometimes irrational decisions. Beyond that, though, the patterns in the trade deals that have been done to date — or perhaps more appropriately the lack of patterns and rigour — raise a range of other questions about their impact, and the extent to which they appear in some cases to be little more than standover tactics of lesser or greater actual import. Take the deals struck with Japan and the European Union last month. Both exemplified some striking features of the "deals" being done. In both cases, the parties documented very different understandings of the deals they thought they had done. There were also glaring holes in the deals in terms of major sectors about which there was only a conspicuous silence. For example, the EU deal was silent on wine and spirits. Most of the deals have yet to be formalised or legislated. Finally, the US has been claiming in almost all of the deals that it struck prior to August 1 that they involved massive commitments of investment in the US by the trade partners involved. For example, in Japan's case, the White House announced that Japan would create a $US550 billion fund to invest in the US, with Trump making the investment decisions and the US government receiving 90 per cent of the profits. It seemed this astonishing deal was news to Japanese negotiators who, the New York Times reported, had already made an offer (which in itself seemed extraordinary): to create a $US400 billion investment fund with half the profits going to the US government. The US president subsequently referred to the deal that he announced as a "signing bonus", which underpinned Japan "only" facing a 15 per cent tariff impost, even as doubts were aired about whether the investment would ever materialise. The NYT reported that Japan's chief trade negotiator, Ryosei Akazawa told Tokyo that the deal was that Japan would offer a blend of investment, loans and loan guarantees, totalling up to $550 billion, with profits to be allocated based on each side's committed risk and financial contribution. There have been similar scenes unfolding over possible investments from the European Union and South Korea. Equally unsettling has been the increasingly blatant intrusion of non-trade factors into the tariff decisions announced by the White House. Brazil is facing 50 per cent tariffs because Trump doesn't like the way former president, strongman and Trump ally Jair Bolsonaro is being treated by the Brazilian judicial system, where he is facing up to 40 years in prison for allegedly plotting a coup to stay in power after losing the 2022 election. By agreeing this week to a Trump demand for a ceasefire, Thailand and Cambodia appear to have ended up with lower 19 per cent tariffs they had originally been proposed. Canada appeared to be facing a more punitive tariff regime than Mexico at 35 per cent — which Trump said was due to Prime Minister Mark Carney signalling Canada would recognise statehood for Palestine. But it turns out the higher tariff rate will not apply to goods covered by the United States-Mexico-Canada trade agreement. That covers an estimated 94 per cent of Canada's exports to the US. The tariff decisions will have a very different impact to those suggested by the headline numbers in other countries too. For example, Germany may only face a 15 per cent tariff as part of the EU deal but is particularly exposed through its big automotive exports to the US. Another shock was the 25 per cent rate applied to India. This caused immediate political blowback for Indian Prime Minister Narendra Modi who claims "bestie" status with the US president but who immediately faced intense criticism at home that this elevated position had not saved India from a punitive tariff rate. What happened in India is just one of the examples of the political shock waves caused around the globe by Trump's moves, in addition to any economic impact they may have. There is considerable concern in Europe, for example, about how European Union member nations react to its deal. The federated nature of the EU structure lends itself to a lot more public debate about a deal not directly negotiated by national leaders. The concern among European political analysts this week is that the deal will play into the hands of far-right and nationalist groups in fuelling resentment against both the EU and sitting governments. It will take countries around the world some time to see how these domestic pressures play out. And then there's the question of how such a deliberately uneven playing field affects their relative competitiveness to each other, even when direct trade with the US is left out of the calculations. It feels like a certain resignation has crept into global trade discussions in the past few months. It is driven as much by a trade-off between uncertainty and certainty as specific tariff numbers. If there is one thing we seem to know about Donald Trump, it is that all that uncertainty is unlikely to end any time soon. Laura Tingle is the ABC's Global Affairs Editor.
News.com.au
4 hours ago
- News.com.au
Stocks sink on Trump tariffs, US jobs data
Stock markets dived Friday after US President Donald Trump announced tariffs on dozens of trading partners and weak US jobs data fuelled the fall. Wall Street's Dow Jones index dropped more than 1.2 percent, while Paris and Frankfurt tumbled nearly three percent lower. The dollar gave up earlier gains against key currencies while oil prices plunged on fears that a weakening US economy would sap demand. Trump on Thursday unveiled his latest list of sweeping levies on about 70 economies, taking tariffs to their highest levels since the 1930s as he seeks to reshape global trade to benefit the United States. Hours later, the US Labor Department said the US economy added just 73,000 jobs in July -- well below market expectations -- while revising down the figures for May and June. "The US payrolls data has eclipsed news about the latest tariff rates applied to the world's economies by Donald Trump, and is now dominating markets," said Kathleen Brooks, research director at XTB trading group. Earlier, she noted, tariffs had been "the main theme sucking risk sentiment from financial markets". Economists have warned that high tariffs -- touted by Trump as a way to boost US industry -- could fuel inflation in the United States and harm its economy. Data on Friday showed US unemployment ticked up to 4.2 percent from 4.1 percent. "The slowdown in jobs started in early Q2 (second quarter) when reciprocal tariffs were announced" at the start of Trump's initiative, Fawad Razaqzada, market analyst at City Index and told AFP in an email. "Companies expecting margins to be squeezed by higher duties probably thought twice about hiring workers in order to keep costs down. So, the US labour market has been losing steam fast, undoubtedly due to tariff concerns." The US Federal Reserve this week held interest rates unchanged, despite massive political pressure from the White House to cut. "The market now seems to think that two months' worth of weak labour market data is enough for some rapid rate cuts from the Fed" in the coming months, Brooks said. - Blistering tariff rates - Trump has delayed implementation of the tariffs several times -- the latest move pushing them back a week to August 7. Some trading partners have reached deals with the United States -- including Britain, the European Union, Japan and South Korea. China remains in talks with Washington to extend a fragile truce in place since May that is due to expire on August 12. For those targeted in the latest round, tariff rates range from 10 percent to 41 percent -- including a blistering 35-percent rate on Canada and 39 percent on Switzerland. Tariff uncertainty overshadowed earnings from major tech titans this week. In Frankfurt, "even exceptionally strong earnings from Microsoft are failing to provide a boost to the broader market," said Jochen Stanzl, Chief Market Analyst at CMC Markets. - Key figures at around 1545 GMT - New York - Dow: DOWN 1.2 percent at 43,594.42 points New York - S&P 500: DOWN 1.4 percent at 6,250.54 New York - Nasdaq: DOWN 1.9 percent at 20,731.65 London - FTSE 100: DOWN 0.7 percent at 9,068.58 (close) Paris - CAC 40: DOWN 2.9 percent at 7,546.16 (close) Frankfurt - DAX: DOWN 2.7 percent at 23,425.97 (close) Tokyo - Nikkei 225: DOWN 0.7 percent at 40,799.60 (close) Hong Kong - Hang Seng Index: DOWN 1.1 percent at 24,507.81 (close) Shanghai - Composite: DOWN 0.4 percent at 3,559.95 (close) Euro/dollar: UP at $1.1552 from $1.1421 on Thursday Pound/dollar: UP at $1.3259 from $1.3208 Dollar/yen: DOWN at 148.07 yen from 150.68 yen Euro/pound: UP at 87.13 pence from 86.43 pence
ABC News
5 hours ago
- ABC News
Cracks emerge in US jobs market as Trump advances punishing tariff agenda
The US job market is showing weakness as companies grappled with US President Donald Trump's sweeping tariffs, government data showed on Friday. US job growth missed expectations in July, the data showed, and revisions to hiring figures in recent months brought them to the weakest levels since the Covid-19 pandemic. The employment data points to cracks in the key jobs market as companies took a cautious approach in hiring and investment and puts pressure on the central bank as it mulls the best time to cut interest rates. The Labor Department reported that US employers added just 73,000 jobs last month, well short of the 115,000 forecasters had expected. The jobless rate nudged up from 4.1 per cent to 4.2 per cent. Experts have warned that private sector firms appear to be in a wait-and-see mode due to heightened uncertainty over Mr Trump's rapidly-changing trade policy. With tariff levels climbing since the start of the year, both on imports from various countries and on sector-specific products such as steel, aluminium and autos, many firms have faced higher business costs. Some are now passing them along partially to consumers. On Friday, the Department of Labor said hiring numbers for May were revised down from 144,000 to 19,000. The figure for June was shifted from 147,000 to 14,000. This was notably lower than job creation levels in recent years. During the pandemic, the economy lost jobs. Average hourly learnings rose by 0.3 per cent to $36.44 in July, the Labor Department said. It added that employment continued rising in health care and in social assistance, while the federal government continued shedding jobs. "This is a game-changer jobs report. The labour market is deteriorating quickly," said Heather Long, chief economist at the Navy Federal Credit Union. She added in a note that of the growth in July, "75 per cent of those jobs were in one sector: healthcare." The US economy has added an average of just 35,000 jobs per month since May, data showed. "The economy needs certainty soon on tariffs," said Ms Long. "The longer this tariff whiplash lasts, the more likely this weak hiring environment turns into lay-offs." But it remains unclear when the dust will settle, with Mr Trump ordering the reimposition of steeper tariffs on scores of economies late Thursday that are set to take effect in a week. Mr Trump also raised tariffs on Canadian imports, while maintaining existing exemptions. Joel Kan, chief economist at the Mortgage Bankers Association, said that for now, "goods-producing industries saw contraction for the third straight month." "Service industries involved in trade also saw declines in job growth, potentially a result of the uncertain tariff environment, as businesses either put their activity on pause or pulled back altogether," Mr Kan added in a note. A sharp weakening in the labour market could push the Federal Reserve toward slashing interest rates sooner to shore up the economy. On Friday, the two Fed officials who voted this week against the central bank's decision to keep rates unchanged warned that standing pat risks further damaging the economy. Both Fed Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller argued that the inflationary effects of tariffs were temporary. They added in separate statements that the bank should focus on fortifying the economy to avert further weakening in the labour market. Putting off an interest rate cut "could result in a deterioration in the labour market and a further slowing in economic growth," Ms Bowman added. "I believe that the wait and see approach is overly cautious," said Mr Waller. AFP/AP
