Recent data have shown that although the labor market in the United States remains strong, its manufacturing is in recession and the service sector is slowing as a result of the trade frictions with China.

With the world's two largest economies set to resume trade talks this week, US companies will be hoping for signs of movement in the dispute, which has been a cause of unnecessary suffering for not only themselves but also US consumers.

US companies have had no choice but to gradually pass on to US consumers the incremental costs of the tariffs imposed by the US administration on Chinese goods. Feeling the pressure from the administration's blinkered view, many US companies have been lobbying their government to change its approach. Additionally, although the US government has "ordered" US companies to bring their factories back home or find alternatives outside of China, a position that ignited widespread discussions about reshoring, according to the latest survey carried out by the US-China Business Council, up to 87 percent of US companies in China have no plans to move out any time soon.

Which is not surprising. It took Apple over a decade to build a highly sophisticated supply chain (of which China is a part), which has ensured its profitability by maintaining very low levels of inventory as products are moved rapidly through the supply chain. Such a sophisticated supply chain means that the tiniest change can derail profits. Apple has yet to suffer directly from the trade war, but trade frictions have already dragged down the global economy and, with it, sales of Apple products.

Other US manufacturers see China as a place with skilled workers, solid infrastructure, agile logistics and advanced communication facilities, all of which are unrivaled by any other Southeast Asian economy. For this reason, they find it unrealistic to move factories elsewhere.

Transferring even 5 to 10 percent of production to Vietnam would translate into a product price hike as the country has only 10 percent of China's manufacturing capacity. India, although not lacking workers, still needs another 30 years or so to catch up with China in terms of infrastructure. Reshoring is also out of the question, as the US lacks adequate skilled workers, a problem only compounded by new US immigration policies.

As David M. Lampton, US expert on China, rightly points out, whether the US government can sustain its economic pressure on China will depend on the strength of the US economy, which, as some economists fear, may be slipping into a recession as the effects of tax cuts have begun to wear off and global growth slowed in the second half of last year.

This concern was only aggravated after the US escalation of the trade conflict on Aug 1, 2019. Despite the US government's repeated denials, recession fears are very much alive and they dominate the daily discussions of US mainstream media outlets. The recent inversion of US 10-Year and US 2-Year Treasury bond yields curves ignited alarms over a looming downturn.

The purchasing mangers index fell below the 50 threshold in August for the first time in the last decade. With numerous economic indicators reflecting shrinking private investment and sluggish job growth, the US economy faces rising downside risks, and economists' projections are growing gloomier.

A recent report by the US Department of Commerce has revised domestic output in the second quarter of this year down to 2 percent, a sign that it will be challenging to achieve the 3 percent yearly growth rate mandated by the US government.

In addition, indicators are showing widespread underperformance in private investment and household consumption. The new round of tariffs scheduled on Sept 1 have further dimmed the prospects of economic growth in the US.

US manufacturing saw its first slump in three years in August as a result of ongoing trade frictions with China. It prompted the government to repeatedly propose lowering wages and capital gains tax as measures to stimulate growth. However, all such talk has come to naught for one reason or another.

The US government then looked to the Fed, hoping that sustained interest rate reductions could stimulate growth. It argued that the rate cut in August was not enough, demanding another 100 basis point-cut to boost growth.

It went as far as targeting Jerome Powell, chair of the Federal Reserve. In the absence of any clear indication of a rate reduction, Powell is now openly derided as the "enemy" amid the escalating trade dispute.

The US is yet to see the inherent problems of its economy for what they are, as the administration continues to exert maximum pressure at home and bully other countries with unilateral actions, or take a hawkish stance on China, while sacrificing long-term wellbeing for short-term gains. These actions will do nothing to revitalize the stock market or promote domestic growth; rather, they will only push the US public to be even more fearful for its own economic future.

It should be clear by now that there is no winner in the trade war. Under these circumstances, the US government announced that it would postpone the date of increasing tariffs on Chinese goods worth of $250 billion from Oct 1 to Oct 15, which was welcomed by the Chinese side.

The two sides reached an agreement that the working groups will start negotiation in the middle of September and pave the way for the next round of trade negotiation in October. The whole world hopes that this round of negotiation will make a substantial breakthrough and bring more certainty for the world economy.

The author is a researcher and deputy director of the Department of External Affairs at the China Center for International Economic Exchange.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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