National

Data: National Retail Federation, Hackett Associates; Chart: Axios Visuals

Ahead of expected tariff increases on consumer goods from China, imports at the nation’s major retail container ports are expected to hit their highest level of the year in November.

Why it matters: The report is the latest data point to show that President Trump's trade war is spurring an increase, rather than a decrease, in buying from China and other foreign exporters. The pace of imports at retail container ports has consistently risen during Trump's time in office.

This year also is expected to top 2018's record high for retail imports, according to a report from the National Retail Federation and Hackett Associates.

What they're saying: “This is the last chance to bring merchandise into the country before virtually everything the United States imports from China comes under tariffs,” Jonathan Gold, NRF VP for supply chain and customs policy, said in a statement.

“Retailers are doing all they can to mitigate the impact of tariffs on their customers. The effect on prices will vary by retailer and product during the holiday season, but ultimately these taxes on America businesses and consumers will result in higher prices.”

The bottom line: New tariffs on a range of Chinese goods took effect at the beginning of September and are scheduled to be expanded on Dec. 15 — covering nearly every good traded between the 2 countries.

The Trump administration also plans to increase tariffs on $250 billion worth of imports already imposed over the past year to 30%, from 25%, on Oct. 15.

U.S. retail imports are surging ahead of new tariffs

The tariffs cover nearly every good traded between China and the U.S.

Business

Tariffs

Axios Pro: Deals

Trade war

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Axios Finish Line

Scores of American small businesses are losing profits and wasting inventory in the U.S.-China trade fight. But the biggest and richest are coasting — in every sector.

What's happening: "Bigger guys, just by virtue of their size, can weather the storm better," says Tom Duesterberg, a trade expert at the Hudson Institute.

Bigger farms are getting even bigger, while smaller ones are going belly up. "The farms left standing after the trade [war] will likely be some of the biggest in the business," Reuters reports.

The U.S. lost more than 12,000 farms in 2018. There are a slew of reasons for the decline, but a trade war doesn’t help.

At the epicenter of the crisis are soybean farmers. They've lost China, their biggest buyer, due to the trade war, and soybean prices have cratered as a result.

But many big farms have been able to circumvent the problem. One North Dakotan, whose farm is about 100 times the size of a typical one, shelled out $800,000 to buy steel bins that can hold excess soybeans until prices come back up, per Reuters. That's not an out available to most farmers.

Bigger retailers, like Walmart and Amazon, have also been able to stave off the trade war's effects.

“Larger retailers may be able to find alternative sources or be able to absorb a price increase without passing the cost on to their customers,” David French, senior vice president of government relations for the National Retail Federation, tells the Washington Post. “But the smaller you are, the more vulnerable you are to the impact."

Smaller retailers that are forced to raise prices will find it even harder to compete with the giants. American consumers are increasingly unwilling to accept price hikes on everyday goods, Axios' Courtenay Brown reports.

Bigger manufacturers are also faring better than their smaller counterparts.

For most American companies, China is a major part of the supply chain — and rejiggering a decades-old supply chain is costly and difficult, Duesterberg says. The big manufacturers have the resources to make these sweeping changes, and the small ones don't.

In some cases, the bigger players can even get Chinese exporters to cover some of the cost of the tariffs for them, says Duesterberg. "They’ve got more leverage" because they're making massive orders.

What to watch: Chinese officials will arrive in D.C. on Thursday for the latest round of trade negotiations with their American counterparts. Look for more small businesses to suffer — or even close their doors — if the parties fail to reach a deal.

Bigger is better in the U.S.-China trade fight

Meanwhile, scores of American small businesses are losing profits.

Illustration of a ship leaving a dollar sign in its wake

U.S. China trade war

Politics

Fitbit Inc., which produces wearable fitness devices, will move its production out of China in January amid the ongoing U.S.-China trade war, Reuters reports.

The big picture: In June, Fitbit joined a group of more than 600 companies to pen a letter in opposition to the trade war, specifically regarding President Trump's plan to continue raising tariffs on Chinese products.

Fitbit said it began looking to move during 2018 as the trade war heated up. 

It has not yet revealed where it will be relocating.

Between the lines: Reuters reported last month that Fitbit is also in talks to be bought by an investment bank.

Go deeper: Data collection from fitness tech has crime-solving capabilities

Fitbit will move production out of China amid trade war

It is not yet clear where the company is headed.

Photo: Rachel Murray/Getty Images for Fitbit Local

Fitbit

Data: U.S. Census Bureau via Tariffs Hurt the Heartland; Note: Lists 1-3 refers to USTR designation of Chinese imports subject to tariffs; Chart: Andrew Witherspoon/Axios

Tariffs imposed by President Trump have so far cost U.S. corporations $34 billion, according to data compiled by Tariffs Hurt the Heartland — a coalition of businesses and trade groups that oppose the tariffs — provided first to Axios.

Why it matters: Trade negotiations are set to resume Thursday, and corporate America is hoping the U.S. and China — whose tit-for-tat battle has cost companies the most — strike a truce.

But things aren't looking great: China is censoring access to NBA games, the U.S. is blacklisting certain Chinese companies and U.S. companies fear the impact of tariffs on holiday season sales.

By the numbers: The $34 billion hit that U.S. companies have taken from the Trump tariffs doesn't include the 15% tax on $112 billion worth of Chinese imports — including  clothes and shoes  — that went into effect on Sept. 1.

Next week: U.S. tariffs on $250 billion worth of Chinese goods are scheduled to rise to 30% from 25%.

While consumer confidence remains at elevated levels, Tariffs Hurt the Heartland points to Wall Street research that projects households would see costs rise by $1,000 after the most recent round of tariffs takes effect — offsetting the benefit consumers got from the tax cuts.

In the meantime, economists fear the trade war is weighing on the global economy — and the could be the catalyst for a recession in the U.S.

What they're saying, via the group's press release: 

"Confidence in the U.S. economy is waning, and leading retailers can’t successfully plan for the future when their supply chains continue to be distorted by tariffs," Jennifer Safavian, head of government affairs at the Retail Industry Leaders Association, a lobbying group whose members include Walmart and Target.

Go deeper:  Scoop: How the U.S. decided which China tariffs will be delayed

The cost of Trump's tariffs

The new data comes as the next round of trade negotiations begin Thursday.

Trump tariffs

The White House confirmed Monday that the next round of high-level trade talks with China will take place in Washington, D.C., beginning Oct. 10.

Why it matters, via Axios' Dion Rabouin: The U.S. economy continues to grow, but is increasingly struggling to do so — and multiple sectors are beginning to view the talks, which will involve China's top trade envoy Vice Premier Liu He, as a primary indicator for the country's economic outlook moving forward.

Go deeper: The upcoming U.S.-China trade talks are huge

White House confirms China trade talks will take place in D.C. this week

They will involve China's top trade envoy Vice Premier Liu He.

World

Economists said in a new survey that they think the U.S.-China trade war will bring about a slowdown in U.S. growth this year and next, per AP.

Why it matters: The economists also said they expect the trade war to increase the risk of recession in late 2020, which would put an end to the longest period of economic expansion on record in the U.S.

By the numbers: The survey by 51 forecasters with the National Association for Business Economics shows they expect U.S. GDP to slow to 2.3% this year from 2.9% in 2018. 

The forecasters estimate a 7% likelihood of a recession starting this year, a 24% likelihood by mid-2020 and 47% by the end of 2020. They foresee a 69% chance of a recession beginning by the middle of 2021.

That timing would be fortuitous for President Trump, as most people wouldn't be feeling the effects when they vote on Nov. 3, 2020.

To avoid a recession, the panel of economists presumed that the Federal Reserve will continue to cut its benchmark interest rate, which the central bank has so far done twice this year.

What they're saying: "The rise in protectionism, pervasive trade policy uncertainty and slower global growth are considered key downside risks,” said Gregory Daco, chief U.S. economist at Oxford Economics.

Go deeper: Business leaders spooked by Trump's manufacturing slump

Economists forecast slowing U.S. growth from U.S.-China trade war

They see a spiking recession risk in late 2020.

Shipping containers from China in Long Beach, California. Photo: Mark Ralston/AFP/Getty Images

The U.S. trade deficit grew to $54.9 billion in August, jumping for the first time in 3 months due to increased imports, reports the AP from Commerce Department data.

Why it matters: Though it had fallen in June and July, the country's overall trade deficit is still up for the year as a result of President Trump's ongoing trade war with China.

By the numbers: The U.S. increased exports by 0.2% in August to $207.9 billion, but imports jumped up 0.5% to $262.8 billion as shipments of cellphones increased ahead of the planned tariffs against Chinese goods that are planned to begin in September.

What's next: The U.S. and China are set to meet next week for the 13th time to try to resolve the trade dispute, despite the fact that Trump downplayed the importance of the meeting this week, telling reporters he has "a lot of options on China. But if they don’t do what we want, we have tremendous power."

Go deeper: Despite promises, Trump's trade deficits are only growing

U.S. trade deficit grows to $54.9 billion in August

Despite decreases in June and July, the overall trade deficit is still up for the year.

Trade deficit

Investors will be closely watching today's U.S. nonfarm payroll report, but they will also have 1 eye out for news on a potentially pivotal meeting between U.S. and Chinese negotiators next week.

What's happening: President Trump downplayed the importance of the meeting on Thursday, telling reporters he has "a lot of options on China. But if they don’t do what we want, we have tremendous power."

It's becoming clear the market doesn't see it that way.

Reality check: The U.S. economy continues to grow, but is increasingly struggling to do so. By the day, more economic indicators — from manufacturing to consumer and business sentiment and now the all-important services sector — are turning negative with more industries beginning to follow manufacturing, trade and transportation into outright contractions.

The trade talks are "the main concern" Bernard Baumohl, chief global economist at The Economic Outlook Group, has about the stock market.

"If once again nothing gets accomplished we could see another substantial fall," he tells Axios.

Where it stands: U.S. equities rebounded on Thursday, as traders continued to buy the dip despite data showing growth in the U.S. services sector badly missed expectations.

Investors increased bets that the Fed would step in next month with rate cuts to help stabilize the economy.

However, many are losing faith in the power of monetary policy to help steady the ship, especially in light of the continued struggles in the eurozone and Japan, which have instituted negative interest rates and considerable stimulus.

"Monetary policy is not going to do a damn thing," Baumohl says. "Monetary policy is being held hostage to this trade conflict."

But, but, but: There may be nothing Trump can do to get a meaningful deal with China at this point, as Beijing seems to be participating in negotiations "with the primary intention of staving off further tariff hikes,” Eleanor Olcott, China policy analyst at independent consultancy TS Lombard, told the South China Morning Post.

“Trump’s actions throughout the trade war, escalating tensions in a wildly unpredictable manner, has made the U.S. an unreliable negotiating partner in the eyes of the Chinese political elite. This, in turn, has relieved pressure on Xi to strike a deal because he is able to convincingly lay the blame for derailment on the U.S."

“The impeachment proceedings tie Trump’s hands when it comes to his domestic agenda, so his attention will be focused on his foreign policy stance, meaning we are likely entering a period of more volatile trade war news.”

Go deeper: U.S. and China agree to restart trade talks in D.C.

The upcoming U.S.-China trade talks are huge

President Trump has downplayed the importance of the meeting.

Animated illustration of a siren flashing on top of a shipping container.

Automation and offshoring have destroyed millions of U.S. manufacturing jobs in the last 2 decades, but another, less-discussed threat to those jobs is the U.S.-China trade war.

The big picture: Almost a fifth of all manufacturing jobs in the U.S. are created by foreign companies that put their factories in American towns to get closer to the U.S. market, according to Brookings, and around a quarter of U.S. exports come from factories owned by foreign countries, reports the Washington Post.

Why it matters: As the Trump administration ramps up its multifront trade war with China, a number of foreign companies are reconsidering their place in the U.S. While some are concerned about doing business in an "America First" environment, others appear to be delaying big-ticket projects — with scores of jobs hanging in the balance.

Chinese investment in the U.S. dropped almost 90% from 2016 ($46 billion) to 2018 ($5 billion), per the Rhodium Group. "Trade and other economic frictions between the two countries have substantially reduced the attractiveness of the U.S. as a destination for Chinese foreign direct investment," says Eswar Prasad, a trade policy expert at Cornell.

The backdrop: Chinese companies went from employing 500 U.S. workers in the manufacturing sector in 2007 to over 26,000 as of 2016, according to the Bureau of Economic Analysis. "It seemed like it was on this dramatic uptick," says Joe Parilla, a scholar at Brookings.

In some cases, Chinese companies have stepped in to bail out failing American factories. As documented in Netflix's "American Factory," China's Fuyao Glass bought a shuttered General Motors plant in Ohio in 2014 and turned it into a glass supplier for the American automaker.

"FDI [foreign direct investment], including from China, has been a significant source of manufacturing employment growth," says Brookings' Mark Muro. "But now that is ebbing."

In Arkansas, 2 factories bought by Chinese companies stand vacant as the trade fight rages on.

In 2017, a Chinese firm bought a factory in Forrest City, Arkansas, that had been empty for 10 years and pledged to create 800 jobs, an investment that would have made that company the biggest employer in the county, reports the American Communities Project. Two years later, the facility is still a ghost town.

“There are various factors that have gone into the delay, but the main factor is the tariffs,” Forrest City Mayor Cedric Williams told the American Communities Project. “We’re at a standstill until they get that resolved.”

Another Chinese company's plan to build a paper mill is on hold in Arkadelphia, Arkansas. In an interview with Christian Science Monitor, Stephen Bell, who heads the city's chamber of commerce, called the trade conflict "a dark cloud hanging over the future of the project."

What to watch: In another potential blow to Chinese-owned companies in the U.S., the Trump administration is considering restricting American firms from investing in them, reports Bloomberg.

How the China trade war threatens U.S. manufacturing jobs

Chinese-owned factories employed over 26,000 U.S. workers in 2016.

Floor of a large factory with heavy machinery

Inside Fuyao Glass, a Chinese-owned factory in Moraine, Ohio. Photo: Andrew Spear/Washington Post/Getty Images

Future

The U.S. says it will implement a 10% tariff on EU aircraft and a 25% tax on "agricultural and other products" starting Oct. 18, following a World Trade Organization's ruling allowing the U.S. to impose up to $7.5 billion in tariffs on European products each year.

The big picture: The United States Trade Representative (USTR) and the EU have each drafted lists of at least $20 billion worth of each other's products to tax in response to this WTO decision. Meanwhile, tariffs from the U.S. trade war with China are estimated to cost U.S. households $2,000 each by next year, per the National Foundation for American Policy. 

The U.S. tariffs are in response to European subsidies for Boeing rival Airbus, the New York Times reports.

Where it stands: The USTR released a list on Wednesday of which European products — including new airplanes, coffee, olive oil, fruit and cheese — will be hit with tariffs. The WTO is currently weighing a case brought by the EU against the U.S. for subsidizing Boeing, NYT reports.

U.S. tariffs on Airbus aircraft will likely raise the price tag on future plane purchases for American airlines.

The U.S. can block the billions in trade from Europe until the 2 sides have negotiated a settlement or the WTO decides Europe has complied with its guidelines. The two sides are expected to meet for trade talks Oct. 14. 

Background: This week's ruling — the final move in a nearly 15-year conflict over Airbus and the "largest authorized retaliation in the [WTO's] history," per the Times — spells out the value of what damages the U.S. can try to regain through tariffs, after the WTO ruled last year "that Europe had illegally subsidized several of Airbus’s models."

Go deeper: Trump's trade war is being felt throughout the economy

U.S. to implement new EU tariffs on cheese, whiskey, other goods

The U.S. says it will implement a 10% tariff on EU aircraft and a 25% tax on agricultural products.

In this image, two men wearing shirts with the Airbus logo work on assembling an Airbus plane

Technicians work on a fuselage segment in the new structural assembly of the Airbus A320 family at the Airbus plant in Germany. Photo: Christian Charisius/picture alliance via Getty Images

Lost amid headlines about the coronavirus pandemic and the seemingly unstoppable stock market rally, has been the monthslong escalation of tensions in the U.S.-China trade war —  and it's likely here to stay.

Why it matters: The tariffs continue to impress a sizable tax on U.S. companies and consumers, adding additional costs and red tape for small businesses, farmers, manufacturers and households trying to stay afloat amid the pandemic.

"The trade war has been quietly intensifying," Stephen Gallagher, chief economist at Société Générale, tells Axios.

Driving the news: White House chief of staff Mark Meadows said late Wednesday that administration officials are "looking at the national security risk as it relates to TikTok, WeChat and other apps" from China and could announce bans in the coming weeks.

That followed remarks from President Trump on Tuesday that he had no plans for "phase two" trade deal negotiations and was "not interested right now in talking to China.”

What's happening: The "phase one" deal was cheered by investors as a positive first step, because it stopped a tit-for-tat tariff escalation that was poised to add a tax to nearly every product traded between the U.S. and China.

However, it did nothing about tariffs on hundreds of billions of dollars of Chinese imports already in place that are paid by U.S. companies.

Why you'll hear about this again: With the U.S. ratcheting up the pressure, there is a decreasing likelihood China lives up to its "phase one" agreement.

That means a diminished outlook for industries that were counting on the $200 billion in increased purchases of U.S. agriculture, energy and manufacturing after a brutal 2019.

Remember: The primary cost of tariffs isn't the tariffs themselves, but the deadweight loss of consumers buying more expensive, or less efficient, products.

The trade war also is a major factor pushing businesses to pull supply chains and production out of China, increasing costs and uprooting longstanding relationships.

For big companies, this will weigh on margins; for small companies, it could mean going out of business.

Don't sleep: Deutsche Bank’s global head of tech strategy Apjit Walia warns that the demand disruption, supply chain upheaval and bifurcated tech standards from a "Tech Cold War" between the U.S. and China could cost the sector more than $3.5 trillion over the next five years.

What's next: Even if Trump loses in November, investors don't expect a significant change in the U.S. approach to China given Joe Biden's recent rhetoric and bipartisan legislation condemning China for its treatment of Uighur Muslims and restrictions on public companies.

The U.S.-China trade war quietly escalates

Photo Illustration: Sarah Grillo/Axios. Photos: Alex Wong/Getty Images and Lintao Zhang/Getty Images

Technology

China

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Axios Pro Rata

Protectionism is poised to play an elevated role in global dealmaking, particularly as countries grapple with the economic fallout of COVID-19.

Driving the news: Governments are creating new regulations and incentives to maintain local ownership of homegrown companies.

France’s Finance Ministry on Friday formed a fund to invest in domestic tech companies if they receive unsolicited takeover offers from foreign suitors. It begins with €150 million, managed via state-backed lender Bpifrance, but could expand to €500 million next year.

Australia has proposed a series of changes related to foreign takeover offers in all sorts of industries, regardless of deal size, including one that would let the country's treasurer force divestitures on the basis of national security.

Poland, Hungary and the Czech Republic are in various stages of implementing new restrictions of foreign direct investments, with the goal of restricting takeovers by non-EU companies.

Germany also strengthened its screening of foreign direct investments, initially aimed at health care, but it's expected to expand to other "sensitive" industries like artificial intelligence.

Sweden today got into the act, with top government officials introducing a series of proposals to better screen foreign direct investments.

India last month said that companies from its seven neighboring nations, including China, must receive government approval for takeovers of Indian businesses. It also applies to other changes to beneficial ownership.

The U.S. doesn't appear likely to enact similar restrictions, regardless of White House saber-rattling toward China, although there was that proposal from some congressional Democrats in April to put an overall moratorium on large M&A until the pandemic subsides.

By the numbers: Global cross-border merger activity is down 40% year-to-date, compared to an overall 43% drop in total M&A, per Refintiv. Cross-border deals for European targets, however, are down 5% versus an overall 12% increase in European dealmaking.

The bottom line: The world may be flat, but political policy is marked by peaks and valleys.

Governments turn to protectionism in pandemic fallout

Global cross-border merger activity is down 40% year-to-date.

Protectionism

Data: U.S. Dept. of Commerce; Chart: Chris Canipe/Axios


President Trump's trade war has led to even bigger trade deficits with China, even though it was intended to improve the trade balance. But it's not just China — the deficit has increased with most of our other major trade partners, too.

Why it matters: While economists agree that trade deficits aren't a good way to measure   a trade relationship, they are the metric Trump fixates on, made campaign promises about and uses to evaluate relationships with other countries. 

Throughout his campaign, Trump vowed that he would wipe away the U.S.'s trade deficits: "You will see a drop [in the trade deficit] like you’ve never seen before.” 

Reality check: Among the U.S.'s 15 biggest trading partners, the trade balance has moved in the wrong direction for Trump in 10 of those countries between 2016 and 2018, while the aggregate trade deficit has jumped from $503 billion to $628B.

While Trump can explain the deficit spike with China as a short-term sacrifice for long-term benefit, it doesn't account for the wider trend.

The latest: The U.S. trade deficit in the first 6 months of 2019 is even bigger than in the last two years.

What's going on: Trump's tax cuts are as much to blame for the increase in the trade deficit as anything else, writes Axios Markets editor Dion Rabouin:

More money in Americans' pockets leads to more consumption, often of Chinese-made goods.

The tax cut helped boost the value of the dollar, which makes imports to the U.S. relatively cheaper.

The big picture: Trade deficits mean we buy more from a country than they buy from us, but that doesn’t necessarily mean the relationship is unfair, writes Axios business editor Dan Primack. 

For example, you have a “trade deficit” with your local grocery: you give them money and get food in return. 

Between the lines: Despite the dubious merit of the trade deficit as a useful barometer of the health of a trade relationship, Trump's obsession with the number has led to strained relations with key allies.

As Axios' Jonathan Swan reported in 2017, the trade deficit is one of the items he always wants to be briefed on before meeting with a foreign leader.

Trump picked a fight with Justin Trudeau over the trade balance, later acknowledging that he made up numbers in arguing that the U.S. has a trade deficit with Canada. It has a surplus.

Coupled with immigration, the trade deficit has been a major source of Trump's animus toward Mexico.

It led Trump to threaten auto tariffs on Europe. 

Despite promises, Trump's trade deficits are only growing

Under Trump, the U.S. trade deficit has increased by $125 billion.

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