As most of the world grapples with inflation, China is facing deflation that could push it into “an economic trap,” according to The Wall Street Journal (subscription).
What’s going on: “Prices charged by Chinese factories that make products ranging from steel to cement to chemicals have been falling for months. Consumer prices, meanwhile, have gone flat, with prices for certain goods—including sugar, eggs, clothes and household appliances—now falling on a month-over-month basis amid weak demand.”
- China’s economy is growing, but slowly, and the government recently announced a series of stimulus programs to help.
Parallels with Japan: While most economists see China avoiding a prolonged recession, some “see alarming parallels between China’s current predicament and the experience of Japan, which struggled for years with deflation and stagnant growth” in the 1990s, following collapses in stock market and real estate value.
- If Japan’s fate were to befall China, the latter would face another hurdle: the usual methods for combating these problems would be either unpopular or toothless “due to the country’s heavy debt load.”
A mixed bag: A long period of lower prices in China could help bring down inflation elsewhere in the global economy, including the U.S.
- But … “[a] deflationary spell in China would also likely mean weaker Chinese demand for food, energy and raw materials, which big chunks of the world rely on for export earnings.”
Effects of uncertainty: And the longer that prices fall and stay down, the more entrenched deflation becomes—making debts “harder to bear and profits and incomes fall. Companies shed workers to fatten shrinking margins.”
Sales of existing homes inched up in May, according to the National Association of Realtors.
What’s going on: Existing home sales increased to 4.30 million units from 4.29 million units in April.
- Sales strengthened in the South and West but weakened in the Midwest and Northeast.
- The median sales price for existing homes was $396,100 in May, a decrease of 3.1% from a year ago.
By housing type: Single-family house sales edged down 0.3%, to 3.85 million units from April’s 3.86 million units.
- Meanwhile, sales of condominiums and co-ops increased 4.7%, to 450,000 units from 430,000 in April.
Unsold homes: The unsold inventory of existing homes on the market rose to 3.0 months from 2.9 in April but stayed near historic lows.
Overall: Home sales have declined 20.4% on a year-over-year basis, from 5.40 million units last May.
The NAM’s take: “The existing home market remained challenged by affordability and lack of inventory, although sales remained higher than the 4.00 million units in January,” said NAM Chief Economist Chad Moutray.
During meetings this week, the U.S. and China attempted to restore high-level bilateral interactions and reverse the tension growing between the two nations, according to The Wall Street Journal (subscription).
What’s going on: “During two days of meetings in Beijing, [U.S. Secretary of State Antony] Blinken and senior Chinese foreign-policy officials agreed to more high-level talks, continuing a thaw after months of near-frozen contacts.”
- “They also promised to find common ground on increasing flights between the two countries and combating the flow of fentanyl into the U.S.”
The background: In recent months, U.S.–China relations have been on a downward trend, following U.S. detection of what the Biden administration said was a Chinese spy balloon.
- Last year, the U.S. imposed restrictions on the export of certain advanced technology to China and is expected to issue new limits on U.S. investments overseas.
- China has taken issue with these moves, as well as with U.S. support for ally Taiwan.
- Some 67% of Americans say China is a “major threat” to the U.S., according to a Pew Research Center questionnaire. That’s up from 43% in 2015.
Topics discussed: During his visit, Blinken raised a number of issues, including tensions over Taiwan and North Korean aggression. He also discussed China’s trade-distorting practices, human rights violations, imprisonment of U.S. citizens and position on Russia’s war against Ukraine, according to POLITICO.
- The meetings also touched on areas of mutual interest, including climate, macroeconomic stability, food security and public health.
What didn’t happen: Blinken’s visit to China—the first by a U.S. cabinet member in more than four years—did not produce substantive advancement on the above issues. However, the meeting served as a starting point for future high-level communications.
- Officials did not address Chinese intelligence movements in Cuba or the establishment of “a military communication channel between the countries to address frequent incidents around Taiwan … a key goal of the Biden administration.”
Business with China: “Blinken said he also met with members of the U.S. business community on Monday, many of whom expressed a desire to continue to grow their operations in China,” according to POLITICO.
- “He said a full decoupling of the American and Chinese economies would be disastrous, pointing to record trade between the two last year, but said the U.S. would continue to take steps to make American supply chains more resilient and deny China technologies that threaten U.S. national security.”
The Panama Canal—which “handles about one-third of Asia-to-Americas seaborne trade”—is at its lowest level in more than 100 years, a development that could jeopardize global supply chains, according to The Wall Street Journal (subscription).
What’s going on: “The government agency that manages the artificial waterway implemented travel restrictions in May to avoid ships running aground, and since then, some large vessels have had to reduce container loads by roughly one-quarter. Further restrictions could go into effect in late June, authorities say.”
- In the first five months of 2023, rainfall in the canal area was 47% below the historical average.
- The canal, which opened in 1914, depends heavily on rainfall to replenish the tens of millions of gallons of water that flow into the sea each time a ship goes through the canal’s locks.
Why it’s important: “Disruptions in the canal’s operations would hurt Southern Hemisphere exporters and importers in the north. Brazilian meat, Chilean wines and bananas from Ecuador are routinely shipped across the canal, along with copper from Chile and liquefied natural gas from the U.S. Gulf Coast.”
- Panamanian officials are trying to avoid a repeat of the problems that afflicted the Suez Canal in March 2021, when a large containership blocked that waterway for nearly a week, costing billions of trade dollars.
The fallout: “In addition to cutting cargo loads, shipowners are adjusting to Panama Canal restrictions by moving containers to trains to ensure safe passage through locks. In some instances, boxes are unloaded from ships on the Pacific Ocean side of the canal, moved by rail and returned to ships before they continue their voyage through the Atlantic Ocean.”
- The Panama Canal Railway has seen a 20% increase in cargo volume as a result of the drought.
- Shipowners are responding by charging an average of $600 more per box on vessels that cross the canal.
- The daily Asia–U.S. East Coast freight rate was $2,400 per container in May, according to Freightos Baltic Index, but it is expected to rise this month partly due to the drought surcharge.
What’s next: Large container shipping companies “have no plans to divert ships away from Panama”—for now. “[E]xecutives said it could happen if drought conditions persist.”
Commerce Secretary Gina Raimondo met with Chinese Commerce Minister Wang Wentao Thursday evening to talk “trade, investment and export policies” in the first Cabinet-level discussion between the two nations in months, Reuters reports.
What happened: The officials “had candid and substantive discussions on issues relating to the U.S.–China commercial relationship, including the overall environment in both countries for trade and investment and areas for potential cooperation,” the Commerce Department announced in a readout of the sit-down.
- “Secretary Raimondo also raised concerns about the recent spate of [People’s Republic of China] actions taken against U.S. companies operating in the PRC,” including an uptick in investigations against these companies’ China operations.
- Wang—who is also confirmed to meet today with U.S. Trade Representative Katherine Tai—voiced concerns over some of the Biden administration’s China policies, “including on semiconductors, export controls and reviews of foreign investments, a Chinese Commerce Ministry statement said,” according to Reuters.
- Both meetings are taking place on the sidelines of U.S.-hosted meetings at the Asia-Pacific Economic Cooperation organization happening this week in Detroit.
What they agreed: Raimondo and Wang said they would begin and maintain open communication, which China’s Commerce Ministry said would let the two countries discuss specific trade and cooperation matters.
Additional background: Earlier this week, Wang met with U.S. firms, with whom he stressed “the importance of the China market for American companies,” reports the South China Morning Post (subscription).
Why it’s important: Thursday’s Raimondo–Wang exchange comes after President Biden and other G7 leaders “said they would ‘de-risk’ without ‘decoupling’ from the world’s second-largest economy in everything from chips to minerals,” according to Reuters.
Washington, D.C. – Today, the National Association of Manufacturers and Make UK hosted a meeting at NAM headquarters where they formalized manufacturers’ commitment to supporting close economic ties between the United States and United Kingdom. Make UK CEO Stephen Phipson and NAM President and CEO Jay Timmons signed an updated memorandum of understanding, which will serve as a roadmap to the cooperation between the two organizations and outlines the key goals and objectives for the partnership.
“The NAM and Make UK have such a strong, special relationship, just as the U.S. and the UK do, and we must continue to deepen that partnership and the commercial and economic ties between our countries,” said Timmons. “Cooperation between American and British companies not only makes our economies stronger, but also strengthens the transatlantic strategic alliances to support the rule of law, freedom and opportunity from those who threaten our shared values. Especially with Russia’s continued assault on Ukraine, it is critical that we unleash the power of commerce to preserve, protect and expand democracy.”
The MOU calls for Make UK and the NAM to work together to provide opportunities for their members to strengthen manufacturing through a number of avenues, including exploring potential trade delegations, trade fairs and business networks; facilitating visits and economic delegations between representatives of the two organizations for promoting trade, investment and commercial exchanges among member companies and organizations; and working together on joint meetings, conferences, seminars, reports, letters and mutually agreed advocacy on trade and investment-related issues.
“Make UK is delighted to have further strengthened our partnership agreement with our American counterpart, the National Association of Manufacturers, as we focus increasingly on boosting cross-Atlantic trade,” said Phipson. “In recent months, we have agreed to a process of even broader sharing of market intelligence, data and policy work, facilitating visits for economic delegations to visit on both sides of the Atlantic to unlock new trading opportunities.
“We will continue to work ever more closely as we look to cement commercial exchanges and opportunities for shared promotion as we build on the ties that have connected our two nations for generations. Relations with the U.S. are vital, and its market is the second-most important for UK goods. In a post-Brexit world, it is likely to assume ever greater importance as part of our efforts to boost global trade.”
Click here to view the full text of the MOU.
The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.90 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.
As the Group of Seven summit begins in Hiroshima, Japan, today, President Biden is expected to announce new sanctions on Russia, according to The Wall Street Journal (subscription).
- President Biden’s goal at the summit is likely to be reinforcing the allies’ support of Ukraine as well as their economic defenses against Chinese power.
- This is the summit’s 48th year. The G7 comprises the U.S., Canada, Britain, France, Germany, Italy and Japan.
The details: “The new U.S. sanctions and trade restrictions target goods and services vital to Russia’s military-industrial complex, said a senior Biden administration official who briefed reporters shortly after the president landed in Hiroshima.”
- “They are also aimed at Russia’s ability to extract the oil and natural gas critical to the country’s economy, the official said. Other Western allies will roll out similar new programs, officials said.”
The big picture: Analysts say President Biden—who canceled several international meetings planned for next week to return to Washington for debt talks—faces a difficult task at the meeting: “convincing allies that the U.S. can keep its economic house in order while moving forward on Russia and China,” according to another Journal article (subscription).
The NAM’s moves: During the NAM’s recent “Competing to Win” Tour in Europe, NAM President and CEO Jay Timmons hammered home manufacturers’ support for Ukraine.
- “[T]he most important thing is to support our allies that believe in democracy,” Timmons said during a live Morning Joe interview from Warsaw, Poland. “And American business, I think, can help lead the way to strengthen and support democracy.”
Sales of previously owned homes declined in April to the lowest pace since the pandemic began, CNBC reports.
What’s happening: “Existing home sales declined 2.4% compared with March to a seasonally adjusted annualized rate of 5.61 million units, the [National Association of Realtors] said. Sales were 5.9% lower than in April 2021. That is the slowest rate since June 2020, which was artificially slow since the economy was struggling with sweeping shutdowns due to the coronavirus.”
- “This count represents closings during the month, so it reflects contracts likely signed in February and March, when mortgage rates were rising.”
- The average 30-year fixed mortgage rate is now around 5.45%.
Shortage continues: Existing home inventory at the end of April was at 1.03 million homes for sale, down 10.4% from two years ago.
- Limited supply kept prices higher. The median price of an existing home sold in April was $391,200, the highest on record.
What’s ahead: The National Association of Realtors said it expects “further declines” in existing home sales.
The NAM wrapped up its “Competing to Win” Tour in Europe with key meetings in Brussels and Paris, cementing important partnerships and building consensus on the imperative to strengthen U.S. alliances with European nations. It also advocated policies that will enable manufacturers to withstand geopolitical risks and threats to global stability.
Brussels power meetings: In Brussels, the epicenter of EU political activity, NAM President and CEO Jay Timmons met with a who’s who of experts deeply involved in trade and economic policy. He touched on a wide range of priorities including free trade agreements, permitting reform in the United States, IP, energy security and regulatory certainty.
- Timmons met with top trade policy leaders in the EU, including Tomas Baert, a trade adviser to European Commissioner Ursula von der Leyen, and Member of European Parliament and Chairman of the Trade Committee Bernd Lange.
- The team also met with BusinessEurope, led by Director General Markus Beyrer and Deputy Director General Luisa Santos, and participated in a roundtable organized by BDI Brussels Head of Office Heiko Willems. The roundtable also included some of BDI’s leading German member companies.
Evening event: The finale of the day in Brussels was a reception co-hosted by NAM Council of Manufacturing Associations member Distilled Spirits Council at the residence of U.S. Ambassador to the EU Mark Gitenstein.
- Timmons and NAM Vice President for International Economic Affairs Ken Monahan discussed the U.S.-EU relationship and the NAM’s priorities with key EU leaders on trade, including European Parliament members Reinhard Hans Bütikofer and Radek Sikorski.
French connection: In France, Timmons met with the ardent champion of manufacturing Benoit Bazin, chief executive officer of Saint-Gobain, one of the world’s largest building materials companies and the manufacturer of innovative material solutions. In North America, Saint-Gobain has approximately 150 locations and more than 15,000 employees.
- The NAM also visited AmCham France. Managing director Eglé de Richemont said following the meeting: “Today, AmCham France had the privilege to welcome three top representatives from the [NAM] to discuss over key themes, including the importance of close economic partnership between the U.S. and France, the criticality of resilient manufacturing in the U.S., France and across Europe and the importance for manufacturers of standing with Ukraine now and tomorrow for the rebuilding of the country.”
The final word: After meeting with other manufacturers on the final leg of his tour, Timmons remarked “We’ve been hard-charging now for almost two weeks, and it’s truly inspiring how unified our partners across the Atlantic are in their solidarity with Ukraine and in meeting this moment with not just talk but also action. We’re just getting started.”
The NAM’s Competing to Win Tour in Europe moved on to London early this week, highlighting the imperative to shore up the U.S.–U.K. relationship—and to urgently address other barriers, like permitting reform and workforce shortages, to enable the U.S. to help allies in the face of Russian aggression and other geopolitical threats.
The issue: Russia’s unprovoked war in Ukraine, the aftermath of the worldwide pandemic and China’s quest for global leadership create a new urgency for expanded trade opportunities between democratic countries.
- The U.S. and the U.K. must work together to shore up supply chains, enhance energy security, boost resiliency and create growth, as NAM President and CEO Jay Timmons emphasized.
The details: Timmons crisscrossed London on Monday and Tuesday, promoting the manufacturing industry and reinforcing its priorities with senior government ministers and officials, including:
- Nigel Huddleston MP, the U.K. minister of state for international trade
- Jonathan Reynolds, Labour Party shadow business secretary (one of the architects of the Labour Party’s industrial plan)
- Jane Hartley, U.S. Ambassador to the Court of St. James’s
Support at home: During his visit, Timmons did an interview with CNN International to discuss the NAM’s new Outlook survey, which found that 77% of manufacturers want to see more trade agreements with Europe.
Making industry connections: At the NAM’s sister organization Make UK, Timmons joined a roundtable with CEO Stephen Phipson and addressed some of Britain’s leading manufacturing companies.
- He spoke about how the U.S. and the U.K. can unlock new trading opportunities going forward and bolster democracy by strengthening commerce.
- The two groups also reaffirmed their commitment to share market intelligence, data and policy work, as well as to facilitate visits for economic delegations promoting trade, investment and commercial opportunities.
- They also voiced their continued and mutual support of the Ukrainian people and of the democratic institutions in their own countries.
What they said: “The ties between the UK and United States go back a long way and we have significant political, economic and trade connections,” said Phipson. “Relations with the US are vital and its market is the second most important for UK goods. In a post-Brexit world, it is likely to assume ever greater importance as part of our efforts to boost global trade.”
- “As world events have made abundantly clear, strengthening democracy, the free enterprise system and strategic alliances in our countries and around the world is essential to our future and the fight against tyranny,” said Timmons. “As the U.S. and the U.K. take steps to build a stronger, more open and secure economic relationship, the NAM urges our leaders to move toward a new U.S.–U.K. market-opening trade agreement that includes strong, clear and enforceable outcomes.”
Meeting manufacturers: In addition, Timmons met with manufacturers that have operations or pending operations in both the U.K. and the U.S. Energy security and regulatory certainty, as well as the worker shortage in the industry, also took center stage in these discussions.
Bottom line: “The tour’s time in London matters to manufacturers in the United States because it strengthens the ‘special relationship’ between the U.S. and the U.K. and boosts the prospects for enhanced cross-Atlantic trade, supporting manufacturing jobs in both countries,” said Ken Monahan, NAM Vice President of International