New Chinese Data Suggest The Trade War Will Get a Lot Worse

By Matthew Klein |  Friday, May 15

Still Not Shopping. When the coronavirus pandemic began in China, most analysts were worried about the impact on global manufacturing. In the months since then, it’s become increasingly clear the bigger economic threat is the impact on consumer spending.

This is most obvious in China, where manufacturing output is now almost back to where it was in December on a seasonally-adjusted basis, while consumer spending is still about 13% below. The reason is simple: Manufacturing workers are used to wearing specialized protective gear and operating in hazardous environments, which means they can get back to work much faster than much of the rest of the economy.

As I explain in this weekend's issue of Barron's, the massive imbalance between production and consumption is going to put enormous pressure on the global trading system:

Unless consumption rebounds quickly, the world will soon be faced with an unprecedented glut of goods that can’t be sold. Depressed global demand will force producers to fight for larger shares of shrinking markets simply to keep sales stable, which in turn will put pressure on governments concerned with preserving jobs and incomes to help their local companies at the expense of foreign competitors.

This is going to matter for everyone, including China. Jordan Schneider of ChinaTalk pointed me to an interesting study from Li Xunlei, Chief Economist at Zhongtai Securities Research Institute, which argues that the real unemployment rate in China has probably jumped to 20%, even though the official data imply almost no change since December, when it was 5.2%.

Markets seem undecided on how to process this all. U.S. stocks were up slightly Friday, with an almost equal split between the number of shares rising and falling. Interest rates were more or less unchanged, although oil and gold both rose. The dollar fell slightly against the euro and yen but appreciated against sterling.

Meanwhile, the Wall Street Journal reports the total number of Americans dying each week is currently more than 30% above normal, and rising. Lindsey Bell, Chief Investment Strategist of Ally Invest, points out that “investors who are speculating in S&P 500 futures are indicating they’re overwhelmingly expecting another fall in stocks, as they are short the most contracts since October 2015.”