What Happened in the World Economy This Week and What It Means

Written by
Simon Kennedy
Written by

Simon Kennedy

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(Bloomberg) -- Follow the latest global economic news and analyis @economics.

Shots were finally fired in the skirmish over commerce between the U.S. and China. Fears of an all-out trade war temporarily abated as the Trump administration and Beijing indicated they're willing to negotiate, though Trump upped the ante again on Thursday with a new tariff proposal.

The international frictions lead our wrap of the week's major economic events.

Tit-For-Tat

A plethora of products from Chinese-made cars to flamethrowers are in Trump's sights with the U.S. allowing 60 days for public feedback on the proposed tariffs. China responded with a threat to levy an additional 25 percent levy on about $50 billion of U.S. imports including soybeans and chemicals. While the exchange rattled stock investors, economists are for now calm about the economic hit the current skirmish will inflict on the U.S. although Federal Reserve officials are concerned about the uncertainty. While President Donald Trump's advisors and Chinese officials indicated they are willing to talk, easing fears of a full-blown trade war, Trump on Thursday escalated the situation, saying he is ordering the U.S. Trade Representative to consider $100 billion in additional tariffs on Chinese goods. Separately, Trump is pushing for a preliminary Nafta deal to announce at a summit in Peru next week and softened a key demand for more North American content in car manufacturing, according to Bloomberg scoops this week.

Looming Deadlines Explain Why Trump Is Hurrying for a Nafta Deal
China Trade Spat Seen Adding Risks But Not Sinking U.S. Economy
Fed Officials Say China Trade Brawl Clouds Policy Outlook
In U.S.-China Tariffs, There Are Far More Losers Than Winn ers
SPECIAL REPORT: Counting the Cost of a Global Trade War
U.S. Trade Offensive Gets Fresh Opportunity With Currency Report

Still Solid

U.S. employers took on fewer that expected new workers in February, but the labor market stayed solid with wages picking up. That will likely keep the Federal Reserve on course to raiseinterest rates. Payrolls rose 103,000, compared with the median estimate of economists for 185,000, after an upwardly revised 326,000 advance, Labor Department figures showed Friday. As Rich Miller reported, unemployment seems headed for levels last seen in the 1960s, which could mean an inflation surge to come. Not all areas of the economy are benefiting with jobless rates in American Indian areas still echoing recession-era levels.

Swapping Coasts

The Fed's eyes and ears on Wall Street named monetary policy veteran John Williams as its new president. Williams, currently the head of the Fed's San Francisco branch, will run its New York outpost from June 18, succeeding William Dudley. He recently said he favors increasing interest rates three to four times this year and has proposed a rethink of how policy makers set long-term policy. In picking Williams, Fed officials ignored calls for the central bank to embrace greater diversity.

Eastern Winds

From Warsaw to Riga, governments are starting to bump against the limits of an economic model that lured western foreign investors for almost three decades, based on lower-paid, less-skilled labor. With wages rising and unemployment in major countries around 4 percent, politicians now realize they must invest more in research and education. Meantime, in Russia, a shrinking population is threatening President Vladimir Putin's economic goals for the next six years just as a pullback in military spending also bites.

Central Bank Surprises

The central banks of Sri Lanka and Bangladesh unexpectedly cut their key interest rates in shifts aimed at supporting their economies as inflation slows. Romania surprised investors by leaving its key interest rate unchanged while Australia, Nigeria and India met forecasts by doing the same. The Bank of Japan is likely to raise its yield target within a year, according to the central bank's former chief economist, who says inflation is accelerating faster than expected.