iStock
Industryweek 30851 Factory Worker Walking Alone
Industryweek 30851 Factory Worker Walking Alone
Industryweek 30851 Factory Worker Walking Alone
Industryweek 30851 Factory Worker Walking Alone
Industryweek 30851 Factory Worker Walking Alone

Global Trade War Threat Is Bringing Anxiety to the Factory Floor

July 2, 2018
"The actual tariff is not a big problem to companies planning for their future,” said Nobel laureate Christopher Pissarides, who teaches at the London School of Economics. "The problem is that you don’t know what’s coming next."

by Fergal O'Brien and Lucy Meakin

Donald’s Trump protectionism is taking its toll on confidence, with companies around the world getting more worried about the damage a full-blown trade war could do to business.

Reports on Monday showed optimism at euro-area factories fell to the lowest in 2 1/2 years in June, while sentiment at Japan’s large manufacturers cooled for a second quarter. In China, a measure of factory activity fell last month, as did similar gauges for the euro area and its two largest economies, Germany and France.

Stocks in Asia and Europe fell on Monday, a negative start to a week that’s set to see U.S. President Trump’s tariffs on $34 billion worth of Chinese goods take effect. While the global economy is still forecast to grow close to the pace recorded in 2017, a tit-for-tat trade war -- along with higher oil prices and tighter monetary policy -- could exacerbate the slowdown that’s being observed in Europe and elsewhere.

The tariff measures announced so far may be manageable but the key question is whether the protectionism goes further.

"The actual tariff is not a big problem to companies planning for their future," said Nobel laureate Christopher Pissarides, who teaches at the London School of Economics. "The problem is that you don’t know what’s coming next. Uncertainty and instability in policy is the worst thing for an investor looking where to invest, the worst thing for companies."

In the euro zone, IHS Markit’s monthly PMI report showed new orders rose the least in almost two years in June. It said exporters are "increasingly concerned about the potential impact of tariffs and other trade restrictions."

A China PMI released on Saturday showed a gauge of export demand tumbling into contraction in June.

"There’s no beating around the bush -- the trade war is a serious risk and we need to take it into consideration," Burkhard Varnholt, Credit Suisse deputy chief investment officer, said on Bloomberg Television.

While Varnholt said that Trump’s tactics could be aimed at mid-term elections later this year and things could cool after that, IHS Markit ’s view is that firms are "bracing themselves for the potential for further export losses."

But trade isn’t the only concern, with oil prices and higher input costs cited in many of IHS Markit’s manufacturing reports. In Germany, supply constraints and a tight labor market are other impediments to continued solid expansion. The latter has also been highlighted by Japanese companies.

In the meantime, a U.S. threat of tariffs on cars has already hit some of Europe’s biggest automakers. Volkswagen shares have fallen about 12 percent in the past month, while BMW is down 9 percent. The Stoxx Europe 600 index has slipped only 2.7 percent in that period.

"In May, the global trade dispute seemed to be easing but in recent weeks it has flared up again with a series of threats and counter-threats," said Adam Slater, an economist at Oxford Economics in London. "The global spill overs from an escalation of current trade disputes, especially the U.S.-China battle, would be considerable."

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!