China's warnings announce the end of Trump's trade war

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By Howard Schneider and Jonathan Spicer

ATLANTA / NEW YORK (Reuters) – Weak sales at Apple and Cargill, US giants of technology and agriculture, could be the clearest sign that President Donald Trump's quest to restore world trade is leading internal costs and could isolate the United States fragile engine of global economic growth.

Apple, a global technology expert, adored for its sleek gadgets, said Wednesday disappointing quarterly earnings due to weak sales in China. On Thursday, private grain merchant Cargill reported worse-than-expected results in China.

China, the world's second-largest economy, probably grew by more than 6% last year, reflecting a slowdown from previous years and, in recent months, its most timid rate since the depths of the financial crisis. 10 years ago.

The trade war between the United States and China threatens a decade-old hope among business leaders and economic leaders that an increase in the purchasing power of Chinese consumers would foster an era of synchronized global growth.

The sharp slowdown in China and weakness elsewhere in the world also threaten to leave American consumers, whose spending accounts for more than two-thirds of US economic activity and who, until now, were eager to spend in a period of rising incomes and wages of households. bulwark against the global slowdown.

"There is a contradiction between the United States acting as the engine of the world and the objective of the Trump administration's policy of reducing the trade deficit. This is another reason why it will be difficult for the American consumer to act as a global engine, "said Catherine Mann, chief economist at Citi and former chief economist at the OECD.

"We are looking at this balance between strong domestic activity and weak external activity" in the United States, Germany and elsewhere, she added, as well as "the effectiveness of Chinese politics. to reverse the trajectory of the economy ".

Other drivers of US growth, including government and business spending and net exports, are all weakening or expected to weaken in the coming months.

The US economy, the largest in the world, is expected to slow down compared to a very robust 2018 year, but it should remain so until around mid-2020, when economists polled by Reuters expect a stabilization in 1.8%. In October, the International Monetary Fund lowered its global growth forecast for 2019 to 3.7 percent, citing the trade war. In December, Citi lowered its forecast to 3.1%.

What was hailed just a year ago as a time of common growth for the world's major economies has moved in a more volatile direction, with the United States being driven by tax cuts and public spending while that the rest of the world was spitting.

Businesses, in a climate of uncertainty, have held back the kind of investment that can drive long-term growth, while governments around the world are struggling against a combination of high debt loads and high levels of debt. growing needs in infrastructure.

MARKET ALARMS

Rising US Federal Reserve interest rates pushed investors into and out of various markets, hitting some emerging markets hard. It has also helped to create serious volatility in the US stock market and a sale of several months which, according to analysts, have expressed concerns about the impending recession.

Apple Inc shares (AAPL.O) fell 9.96% on Thursday to their lowest level since mid-2017 after the company trimmed its sales forecast.

Apple's announcement recalled memories of a technology-driven market decline in 2000 that preceded a mild recession. "It's so reminiscent," said David Rosenberg, an economist at Gluskin Sheff + Associates Inc., saying it was new evidence of the worsening prospects for the Chinese manufacturing sector that will weigh in on Global economy.

On Thursday, a Fed official said future planned rate increases should be halted until this important assortment of global issues is resolved.

"I would be a supporter of taking no action … in the first two quarters of this year," said Dallas Fed President Robert Kaplan on Bloomberg television. In December, Fed policymakers forecast a median of two more rises this year.

US INSULATION

While Trump has set March 1 to conclude a trade deal with Beijing, concerns go beyond China and extend to Europe, where an agreement on the exit of the United Kingdom from the European Union, known as Brexit, was not concluded in less than three months. the deadline of March 29th.

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But the impact of China is huge. Chinese growth is fueling a variety of global prices such as oil, metals and microchips, which boost investment and spending decisions around the world. There is growing evidence that tensions between the two largest economies have undermined business confidence and dampened investment.

This could mark a turning point compared to most of 2018, when many economists and officials said the higher tariffs charged by the Trump administration had not yet seriously affected US growth. Kevin Hassett, the White House's economic advisor, said Thursday that the sharp drop in Chinese economic growth would affect US profits, but that sales of Apple and other companies are expected to rebound once the trade deal is signed.

The US manufacturing sector began to slow down and the Institute of Supply Management's survey of corporate purchasing officials revealed Monday the biggest monthly decline since the depths of the December 2008 recession. Quarterly report of the Dallas Fed on energy companies showed a sharp slowdown at the end of 2018.

"The rest of the world is slowing down, especially Europe and China, but the United States has enough momentum," said Mohamed El-Erian, chief economic advisor to Allianz's asset manager and insurer. . "The problem is that policymakers are not sensitive enough to generate spin-offs (and) market volatility could impact economic weakness."

(Report by Jonathan Spicer and Howard Schneider, additional report by Jason Lange and Gaurika Juneja, editing by Leslie Adler)