This Week In The Economy: U.S.-China Exchange More Punitive Tariffs, UK PM Accuses EU Of Disrespect, Weak Outlook For Housing?

Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, 2) provide a window into the challenges and decisions facing businesses today, and 3) assess what the impact will be for consumers.

The United States and China exchanged more salvos in their ongoing trade war this week, with the U.S. imposing additional tariffs on $200 billion worth of Chinese goods. Initially, a 10% import duty will go into effect September 24. That will rise to 25% at the start of 2019. China retaliated immediately, announcing tariffs of 5% or 10% on $60 billion in U.S. goods. The response targets about 5,200 U.S. products including Christmas lights and liquefied natural gas. The duties will also go into effect on Sept. 24.

With this latest outbreak in hostilities, the U.S. will have imposed tariffs on approximately $253 billion worth of Chinese exports, while China will have raised tariffs on about $113 billion of imports from the United States.

Given China exports far more goods to the U.S. than the latter sends the other way (around $506 billion vs. $130 billion) the question now is what creative ways will Beijing think up to respond should the Trump administration continue to tighten the screws on the world’s second largest economy.

The week ended with still no agreement between Canada and the United States that would pave the way for our neighbor to the north to join the updated NAFTA deal between the U.S. and Mexico.

Negotiators are under pressure to reach an agreement with enough time for Congress to review and approve the pact before the new administration takes over in Mexico (December). Talks have stalled, however, over issues such as providing U.S. producers greater access to Canadian dairy markets, and opening up the U.S. government procurement process to more Canadian companies.

Leaders of EU member countries gathered this week in Salzburg, Austria to discuss — among other things — the UK’s looming exit from the bloc. In particular, UK Prime Minister Theresa May pitched her plan for what the economic relationship with the continent should look like after March 2019.

It is fair to say her counterparts around the table were less than impressed, with French President Emmanuel Macron describing May’s proposal as “unacceptable.” He further added:

“We cannot give anything up on this point. It is a vital, political and economic interest of the EU.”

May countered with a warning that the UK would rather go through a hard Brexit than accept a bad deal, and her proposal is the best way forward. “Throughout this process, I have treated the EU with nothing but respect. The UK expects the same,” she said.

“Anything which fails to respect the referendum or which effectively divides our country in two would be a bad deal and I have always said no deal is better than a bad deal.” — Theresa May

Ten years on from the financial crisis, U.S. households have rebuilt their balance sheets at a rapid clip, fueled by a record-breaking stock market. The Federal Reserve reported this week that the net worth of households and nonprofits rose to $106.9 trillion in the second quarter of 2018. Of that number, the value of directly and indirectly held corporate stocks increased by $800 billion and the value of real estate increased $600 billion.

Existing homes in the United States sold at a rate 5.34 million in August, the same as in July and following four consecutive monthly declines. The National Association of Realtors in their monthly report said strong sales in the Northeast and a moderate rebound in the Midwest helped to balance poor sales in the South and West. “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market,” the group said.

The median price for existing homes in August was $264,800, 4.6% higher compared to the same month a year ago and the 78th straight month of year-over-year gains.

Total housing inventory at the end of August also remained unchanged at 1.92 million existing homes available for sale, compared to 1.87 million a year ago — that comes out to a 4-month supply at the current sales pace.

Speaking of housing supply, a government report this week indicates homebuilders may be hitting the pause button as the housing market continues it slow recovery from the trauma of 2007. The U.S. Census Bureau reported a 5.7% decline in August (from July) for authorized building permits for housing units. On a year-over-year basis, building permits were down 5.5%. Authorizations for single-family homes fell by 6.1% compared to July.

The British pound plunged following the disastrous Salzburg summit and the lack of an accord between the UK and the rest of the EU. This compounded an already worrisome week for the island nation, with news that consumer prices rose to their highest level since the beginning of the year.

The Office of National Statistics said the Consumer Price Index (CPI) rose by 2.7% in August compared to a year ago, up from 2.5% in July. ONS said rising prices for a range of recreational and cultural goods and services, transport services and clothing drove the majority of the overall increase.



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Brai Odion-Esene

Founder — SW4 Insights. Public policy junkie and Central Bank Watcher. Recovering journalist and former Senior Director at Hamilton Place Strategies