US hides behind tariff wall, China rethinks uber-competition

Kia ora,

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news China is having second thoughts about how some industries are operating with their super-competitive impulses.

But first, a widely followed American leading index tracker weakened in June. The US Conference Board's LEIcontinued its fall which started in mid 2022 and has picked up its pace of decline somewhat. The LEI fell by -2.8% over the first half of 2025, a substantially faster rate of decline than the -1.3% contraction over the second half of 2024. For a second month in a row, the stock price rally was the main support of the LEI. But this was not enough to offset still very low consumer expectations, weak new orders in manufacturing, and a third consecutive month of rising initial claims for unemployment insurance.

And a new attack vector on the US Fed by their Treasury Secretary probably won't help.

But investors are happy, pushing the S&P500 up to a new record high, emboldened by tariff protections that will bring short-term gains.

North of the border. Canadian producer prices were expected to fall in June continuing an easing that started in February. However they rose moderately to be +1.7% higher than a year ago. But the rise seemed to be caused by a jump in the precious metals corner of this index rather than more generally. So the impact isn't significant.

More generally in Canada's economy, a central bank survey shows that tariffs and related uncertainty, along with spillover effects on the Canadian and global economies, continue to have major impacts on businesses’ outlooks. However, the worst-case scenarios that firms envisioned last quarter are now seen as less likely to occur.

A parallel survey of Canadian consumers revealed a concerned public, one that saw a tough future. But the US copped almost all the blame, and Canadians said they are prioritising local purchases now at the expense of US sourced goods and services. Travel to the US is off their agenda.

Across the Pacific, the People’s Bank of China kept key Loan Prime Rates (LPR) at record lows during the July fixing yesterday, as was expected. The economic resilience in the Chinese economy means they are keeping their powder dry, even though American tariffs and threats remain a concern. But those resonate less at present.

China seems to be taking quite broad central policy actions to transform its industrial policies. Using the excuse of the "trade-war crisis" as motivation, it has released a digital transformation plan for their auto industry alongside similar initiatives for machinery and power equipment. Within those they are moving to promote the "orderly exit of outdated production capacity" as part of its broader industrial strategy.

Part of the motivation is to rein in the ultra-competitive nature of Chinese commerce at present, a nationwide race to the bottom in terms of pricing while satisfying rising consumer standards. The big fear is that, uncurbed, it will bankrupt whole industries. They already have enough problems with their property sector. They think they don't need the same in the automotive, and machinery manufacturing sectors as well.

In Australia, forecasting conducted for car dealerships suggest vehicles manufactured in China will make up almost half of sales within a decade in a major market shift.

The UST 10yr yield is now at 4.37%, down -6 bps from yesterday at this time.

The price of gold will start today at US$3,393/oz, up +US$45 from yesterday.

American oil prices are softer at just over US$67/bbl while the international Brent price is now just on US$69/bbl.

The Kiwi dollar is now at 59.8 USc and up +15 bps from yesterday. Against the Aussie we are unchanged at 91.6 AUc. Against the euro we are down -20 bps at 51.1 euro cents. That all means our TWI-5 starts today at just on 67.4, down -10 bps from yesterday.

The bitcoin price starts today at US$117,913 and down a minor -0.2% from this time yesterday. Volatility over the past 24 hours has been modest, at just on +/-1.2%.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again tomorrow.