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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US job creation beats forecasts, as trade war with China begins - as it happened

President Donald Trump at a ‘Make America Great Again’ rally in Montana last night.
President Donald Trump at a ‘Make America Great Again’ rally in Montana last night. Photograph: Carolyn Kaster/AP

And finally, here’s our Q&A on the new US-China tariffs, and what it might mean for the global economy.

Here’s our earlier summary of the trade dispute.

Here’s our report from China:

And here’s our write-up of the US jobs report.

Our rolling coverage of today’s drama starts here, after the US confirmed that it was imposing $34bn of tariffs on China, triggering criticism in Beijing and a rapid retaliation.

That’s probably all for today. Thanks, and have a good weekend. GW

Updated

In other trade spat news, Russia has announced new tariffs on US imports - in retaliation to the US steel and aluminium levies which Donald Trump signed off early this year.

This will push the cost of certain US imports up by between 25% and 40%.

Economic development minister Maxim Oreshkin explained:

In particular, some types of road construction equipment, oil and gas equipment, tools for metal processing and rock drilling, as well as fibre optics are covered.”

CNBC have created a very handy list of the Chinese imports subject to America’s new 25% tariffs:

CNBC on the US-China trade war

Here’s their article on the trade war.

Will Hobbs, head of investment strategy at Barclays Smart Investor, believes president Trump is trying to squeeze concessions out of China, rather than deliberately cause economic harm.

With US elections this autumn, the White House doesn’t want to upset voters, Hobbs argues:

“The drumbeat of a full blown trade war is certainly getting louder, but we still maintain that this is more likely a negotiating strategy on the part of the US administration designed to prise open further a Chinese economy which remains amongst the most protectionist in the world.

We are reliant on the presence of US midterm elections in November, as well as a degree of economic self-interest, to act as a restraining force on the US administration. The fact that most of the targeted goods in this latest batch of tariffs go into the supply chains of US multinational manufacturers and originates from companies that aren’t in fact Chinese gives some sense of how complicated, and messy, it is to prosecute a trade war in the modern era of exploded corporate supply chains.

On the US jobs report, Capital Economics says:

The 213,000 gain in non-farm payrolls in June, which followed an even stronger 244,000 rise in May, provides further evidence that uncertainty over trade policy isn’t yet having a major impact on the economy.

It also leaves the Fed firmly on track to raise interest rates twice more by year-end.

The Financial Times reports that Chinese social media was gripped by the process of Peak Pegasus, a ship full of American soyabeans, earlier today.

Peak Pegasus was in a race against time to reach the port of Dalian before Chinese tariffs took effect.

But its efforts were in vain....customs officials had received their orders to implement the new tariffs before it arrived.

Kevin Hassett

One of Donald Trump’s economic advisors has predicted that Donald Trump will succeed in shaking up global trade.

Kevin Hassett, chairman of the Council of Economic Advisers, told Bloomberg that the president will hammer out reciprocal trade deals in the coming months that will reduce trade barriers.

Hassett declared:

The president wrote The Art of the Deal... I think we’re going to see those deals soon.

So far, though, Trump’s trade moves have pushed up trade barriers. Not only with China too; his 25% tariffs on steel and aluminium have provoked the EU into imposing new levies on US products like motorbikes and orange juice.

Summary: What you need to know about the trade row

Americans have been waking up to the news that they are officially in a trade war with China.

Ovenight, Washington imposed 25% tariffs on $34bn of Chinese imports - enacting a plan laid out by president Trump earlier this year. The levies mainly affect Chinese technology such as aerospace, IT, and medical kit.

The tariffs are part of America’s push against what it sees as China’s unfair trade practices.

But the move has been criticised in China - with the US labelled ‘hoodlums’ by local media. Chinese premier Li Keqiang warned it would hurt free trade and multilateral relations.

The ministry of commerce warned that America was starting “the biggest trade war in economic history”.

Beijing has also delivered on its threat to make US imports pricier. It retaliated with tariffs on a range of products including soybeans, chemicals and some auto vehicles.

Economists are concerned that the trade could intensify in the weeks ahead.

Donald Trump has added to these concerns, by suggesting overnight that tariffs could eventually be imposed on $500bn of Chinese imports unless the country changed its ways.

Mark Whitehead, manager of the Legg Mason Martin Currie Global Equity Income fund, says these moves could jolt the markets.

Investors must therefore be prepared for volatility to intensify. This will particularly be the case if companies pass on any tariffs to consumers, which could stoke inflation.

“If we get a prolonged trade war and the US Federal Reserve continues to raise rates and tighten policy, there is a danger that this combination of headwinds could cause the global economy to slide towards recession.”

Farmers in America have voiced their concerns that sales to China - a key market - will suffer.

Updated

Here are the key charts from today’s US jobs report:

US non-farm payroll report
US jobs report

The US dollar has fallen against other major currencies, following today’s jobs report - and the underwhelming wage growth.

That’s pushing shares up in New York in pre-market trading.

Today’s jobs report suggests America’s economy is shrugging off the threat of a trade war.

Our US business editor Dominic Rushe explains:

The US added 213,000 jobs in June as the unemployment rate ticked up to 4%, suggesting the start of an international trade war has so far done little to dent the robust jobs market.

The US has now added jobs every month for 93 months in a row – the longest such stretch since records began. The unemployment rate most likely rose as more people who were not looking for work started job searches.

The tariffs imposed today by the US and China have been overshadowing the global economy for months. Of course, we’ll only see their full impact in the months ahead....

Here’s a snap summary of the US jobs report, from Bloomberg TV

The June jobs report

US unemployment rate rises

Despite the solid job creation in May and June, the US unemployment rate has risen to 4% from 3.8%.

It’s the first rise in a year, and might fuel concerns that the jobs market is levelling out.

But... this is also because more people are looking for work. This pushed the labor force participation rate up to 62.9%, from 62.7% in May.

US JOBS REPORT RELEASED

Newsflash: America’s labour market created more jobs than expected last month, but wage growth remains subdued.

The June non-farm payroll, just released, rose by 213,000 - beating forecasts of a 195,000 increase.

May’s figure has also been revised higher, from 223,000 to 244,000 - underlining that America is still creating jobs at a decent rate.

But disappointingly, average hourly earnings only rose by 0.2% during the month - missing hopes of a 0.3% rise. That kept the annual earnings growth at 2.7%, missing expectations of 2.8%.

This suggests that there’s not much wage inflation in America - bad news for workers, but it might take the pressure off the Federal Reserve to raise interest rates.

More to follow...

Here’s a video clip of Airbus CEO Tom Enders warning today that Brexit will be damaging for his industry and the UK, whether it’s “soft or hard, light or clean or whatever you call it”.

China's premier: Trade war won't benefit anyone

Chinese premier Li Keqiang in Sofia, Bulgaria, 06 July 2018. The Premier of the State Council of the People’s Republic of China Li Keqiang visits Sofia for the 7th summit of heads of government of Central and Eastern European Countries (CEEC) and China that will take place in Sofia, Bulgaria on 07 July. EPA/BORISLAV TROSHEV
Chinese premier Li Keqiang in Sofia today. Photograph: Borislav Troshev/EPA

China’s premier has warned that Beijing will respond to Donald Trump’s tariffs, even though a trade war isn’t in anyone’s interests.

Li Keqiang told a summit meeting in Sofia, Bulgaria, that:

“A trade war benefits no-one because it hurts free trade and the multilateral process.

“If a country wants to raise tariffs, China will respond to defend itself.”

Li is attending the 7th summit of heads of government of Central and Eastern European Countries (CEEC) and China, which has been slightly overshadowed by the start of the US-Chinese trade war this morning.

Updated

Paul Donovan of UBS argues that the US and China aren’t in a trade war yet....but they will be, if Trump actually slaps tariffs on $500bn of Chinese imports (as he seemed to threaten last night).

Donovan also points out that US consumers will pay these tariffs:

  • The US raised consumer taxes again overnight. $34bn of goods partially made in China now face a 25% tariff. The consumer tax was designed to minimize the impact on the US consumer, which makes it something of an economic practical joke. This is not a trade war - it may redistribute patterns of trade.
  • US President Trump was sounding agitated, threatening to tax US consumers on up to $500bn of US sales (that would be a trade war). This creates uncertainty, which the Federal Reserve warns may damage investment in the US. Even if just “art of the deal” bluster, such talk has a cost that may not easily be reversed.

EU: Trade wars are bad

Europe’s trade commissioner, Cecilia Malmstrom, has tweeted that these new tariffs will hurt the global economy:

That’s a non-too-subtle rebuttal of Trump’s claim that trade wars are good and easy to win.

US farmers are understandably concerned about the trade war, which could badly dent their exports.

China is the biggest single market for US soybeans, buying more than half the country’s production. They’ve now less attractive due to the additional 25% tariff being levied by Chinese officials at the border, which might increase demand for Brazilian soy instead.

Brent Bible, an Indiana farmer who grows corn and soy, says the trade war has already caused damage, driving down the price of soybeans in the wholesale market.

This means farmers are reluctant to invest in new equipment and storage, Bible told the New York Times, adding:

“If we’re not spending money then other industries aren’t making any money off of us, either.”

The financial markets continue to take the trade war in their stride. European equities are a little higher, after a positive day in Asia.

Donald Trump’s claim overnight that he could eventually impose tariffs on $500bn of Chinese imports - a truly colossal sum - hasn’t caused any obvious panic.

Arnaud Masset of Switzerland’s online bank Swissquote, says investors don’t really know where they stand:

The dollar index was down 0.10% to 94.30, the single currency rose 0.20% to 1.1715, while the Swiss franc and Japanese yen were treading water.

The Chinese yuan was down only 0.10%. Equities were blinking green across the screen, while bond yields were relatively stable on both side of the Atlantic.

Robin Bew of the Economist Intelligence Unit points out that tariffs actually hurt the country imposing them, as well as their target.

China hits back with tariffs on US imports

Newsflash: China has joined Donald Trump’s trade war, by imposing retaliatory tariffs of 25% on $34bn of US goods.

The Xinhua news agency is reporting that China’s tariffs came into effect at 12.01pm Beijing time - shortly after America fired the opening salvo.

The list of products affected includes US fruit and vegetables (from apricots to soy beans), cigars, chemicals, some vehicles, a wide array of chemicals (including crude Benzene and various adhesives), plastics and some medical equipment.

UK productivity crisis deepens

The latest reading for the productivity of British workers is out, and they’re unlikely to cheer the chancellor, Philip Hammond, who has made boosting efficiency one of his top priorities.

According to the Office for National Statistics, economic output per hour of work dropped by 0.4% in the first three months of 2018 from the final quarter of last year, amid a strong increase for employment across the UK.

When more people contribute to the economy without generating increased levels of economic output, productivity falls.

The reading is worrying because higher rates of productivity tend to lead to greater increase in pay - which has grown at a pitiful rate in the UK since the financial crisis.

Britain's productivity

Comparing the first quarter to the same period a year ago, productivity growth increased by a healthier-sounding 0.9%. However, the ONS said this growth remains below the average pre-downturn of 2%, continuing the “productivity puzzle”.

Economists are perplexed as to why the UK has failed to return productivity growth towards the pre-crisis average, although many fear falling business investment as Britain leaves the EU could make the problem worse.

That’s because companies spending on machinery and better technology tends to boost the efficiency of workers.

Newsflash: Airbus says is already taking steps to protect itself from Brexit damage:

Airbus CEO Tom Enders insists he isn’t trying to meddle in UK politics - despite launching such a stinging attack on the government.

Airbus is ‘going for broke’ in its attempts to avoid a damaging hard Brexit, reckons Tom Macleod of Sky News.

John Collingridge of the Sunday Times says the government really should listen to major businesses like Airbus (rather than just swearing about them, foreign secretary....)

Airbus: UK government has no clue over Brexit

Back in Britain, the boss of Airbus has launched an absolutely blistering attack on the UK government’s Brexit strategy.

CEO Tom Enders has told reporters that Theresa May’s administration has “no clue” about how to execute Britain’s departure from the European Union without causing ‘severe harm’.

My colleague Rob Davies is attending Airbus’s annual media briefing, and reports.

Last month, Airbus warned that it could be forced to stop making aircraft wings in Britain, if Brexit disrupts its access to the European customs union.

This new intervention comes as Cabinet ministers head to Chequers for their own crunch talks on Brexit, where Theresa May faces a battle with ministers...

Updated

Anticipation is building in the markets, as traders wonder when China will deliver on its promised retaliation.

Mike van Dulken of Accendo Markets says Beijing is “teasing the markets” by delaying its response to America’s move, making it clear that the US fired the first shots.

Technically, I think the ‘tat’ comes first.... (as in the successful ‘tit for two tats’ game theory strategy).

The American Chamber of Commerce in China has appealed to both sides to negotiate a settlement.

Chairman William Zarit warned:

“There are no winners in a trade war.

We urge the two governments to come back to the negotiation table.”

“Buy on the sound of cannons” is an old City maxim. And today, traders are buying on the sound of tariffs.

Asian stock markets have actually risen today, despite Donald Trump pulling the trigger on Chinese imports. China’s Shanghai Composite index has gained 1%, with Hong Kong close behind.

Asian stock markets today
Asian stock markets today Photograph: Thomson Reuters

Traders may be relieved that the waiting is over - these tariffs have been hanging over our heads for weeks!

Elsa Lignos of Royal Bank of Canada explains:

The first batch of US tariffs on China came into force – it is a milestone in the trade war but a very well-telegraphed one. China said it’s forced to retaliate, but did not specify a time-frame, helping risk appetite.

Trump repeated his claim that China is “killing us” on trade at a rally in Montana last night – but his pattern so far has been to respond to the response – so China’s delay in retaliation may slow down the war.

US accused of acting like 'hoodlums'

China’s newspapers are very critical of Donald Trump for launching the trade war, accusing the US president of leading a ‘gang of hoodlums’.

Our Beijing bureau chief, Lily Kuo, reports:

“If what the US wants is to escalate a trade war with China, then so be it. A little fighting may be the only way the Trump administration clears its mind and allows everyone to sober up,” the state-run Global Times said on Friday.

“The Trump administration is behaving like a gang of hoodlums with its shakedown of other countries, particularly China,” said an English-language article in the China Daily. On Thursday, a spokesperson for China’s ministry of commerce said the US will be “opening fire on the whole world and also opening fire on itself.”

We’re now awaiting Beijing’s formal retaliation.

China has swiftly hit back, accusing the United States of starting “the biggest trade war in economic history”

The country’s Commerce Ministry said imposing tariffs on $34bn of Chinese sales into America would hurt the global economy, damage large companies and consumers.

A ministry spokesman added:

“China is forced to strike back to safeguard core national interests and the interests of its people.”

The agenda: Trump begins trade war with $34bn tariffs on China

Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.

The trade war between America and China has begun, as Donald Trump delivers on his threat to hit $34bn of Chinese imports with new 25% tariffs.

Washington imposed the new tariffs at midnight East Coast time, as Donald Trump had outlined in June.

The move means US customs officials must now collecting 25% tariffs on more than 800 Chinese products, including aerospace, IT, robotics and industrial machinery.

Tariffs on another $16bn of Chinese goods are expected in a couple of weeks.

China has already vowed to hit back, of course, and has lined up tariffs on $34bn of US goods — such as soya beans, electric vehicles, seafood and pork. That could hurt America’s agricultural base.

Last night, Trump told reporters that the US could impose more tariffs if China retaliates, with officials working on a second wave of $200bn of imports.

Speaking on Air Force One, he floated the idea of tariffs on an extra $300bn of Chinese goods, on top of what has been lined up .

The president explained:

“34 [billion dollars], and then you have another 16 in two weeks and then as you know we have 200 billion in abeyance and then after the 200 billion we have 300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300.”

Such an escalation would seriously roil the financial markets, and risk chilling global growth.

As Bank of England governor Mark Carney warned yesterday, a full-blown trade war risks damaging the world economy, including America.

Also coming up today

The pound could be volatile as the British cabinet meets to debate Theresa May’s Brexit plan.

Brexiteers are already criticising the PM’s latest attempt to limit the economic damage of leaving the EU, claiming it would prevent a decent trade deal with the US. It could be a long and testing day at Chequers.

We also discover how many jobs were created in America last month.

June’s non-farm payroll is expected to rise by 195,000, compared with the 223,000 new jobs in May. Economists hope that wage growth picked up, to 2.8% per year from 2.7%.

The agenda

  • 7am BST: German factory orders
  • 8.30am BST: Halifax’s UK house price survey
  • 1.30pm BST: US non-farm payroll jobs report

Updated

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