🇺🇸🇨🇳🏭 Geopolitical Risk and Decoupling: Evidence from U.S. Export Controls

"The U.S. has imposed export controls to deny China access to strategic technologies [but] we find no evidence of reshoring or friend-shoring. As a result of these disruptions, affected suppliers have negative abnormal stock returns, wiping out $130 billion in market capitalization, and experience a drop in bank lending, profitability, and employment. [U.S. firms'] total number of customers declines, potentially inflicting collateral damage upon the same U.S. firms whose technology export controls are trying to protect."

🔗 New York Federal Reserve

📎📝 Arnaud Betrand:

🔸 Wow, this is huge: the Federal Reserve is essentially saying that the U.S. shot itself in the foot with its export controls on China (which was illustrated by Intel's recent staff layoffs).

🔸 They also highlight that "the benefits of U.S. export controls, namely denying China access to advanced technology, may be limited as a result of Chinese strategic behavior. Indeed, there is evidence that, following U.S. export controls, China has boosted domestic innovation and self-reliance, and increased purchases from non-U.S. firms that produce similar technology to the U.S.-made ones subject to export controls.”

🔸 In other words, it's almost a pure loss for US firms who lose customers, revenue and market capitalization whereas the affected Chinese firms find alternative suppliers and China boosts its domestic innovation and self-reliance.

🇺🇸📉 Sahm Rule Recession Indicator jumped to 0.53 from 0.43 following weak US jobs data, triggering a recession warning. The Sahm rule is a formula used to identify the start of a recession based on the unemployment rate. It triggers a recession warning when the 3mth moving avg of unemployment rate rises by 0.5ppts or more above its lowest level in the prev 12mths.

🔗 Holger Zschaepitz

🇺🇸🏭📉 The ISM Manufacturing PMI has been below 50 (in contraction) for 20 out of the last 21 months. With data going back to 1948, that's only happened one other time: 1989-91 (Recession in 1990-91).

🔗 Charlie Bilello

🇺🇸🏭📉 "Near Stalling Of Production" - US Manufacturing Surveys Collapsed In July

🔸 S&P Global US Manufacturing PMI falls to 49.6 in July, dropping into contraction for the first time since Dec 2023.

🔸 ISM Manufacturing PMI plunged to 46.8 (48.8 exp) - weakest since Nov 2023 (near post-COVID lockdown lows).

🔗 Zero Hedge