The Wall Street Journal - 03.09.2019

A6| Tuesday, September 3, 2019 ** THE WALL STREET JOURNAL.

gust to the lowest level since
November 2012, according to a
monthly survey of more than
670 small companies conducted
for The Wall Street Journal.
The portion of respondents that
expect the economy to worsen
over the next 12 months rose to
40%, compared with 29% in
July and 23% a year ago.
Japan, meanwhile, said
Monday that capital spending
by the country’s manufactur-
ers fell 6.9% in the April-June
quarter, the first decline in
two years, as companies grap-
pled with a nearly double-digit
decline in exports to China.
South Korea said Sunday its
exports to China fell 21.3% in
August compared with the
same month a year earlier,
driving an overall 13.6% de-
cline in exports.
A U.S. survey of manufac-
turing purchasing managers to
be released Tuesday will shed
further light on how much the
trade conflict is affecting the
U.S. industrial sector. Several
reports in recent days sug-
gested the fallout was deepen-
ing globally.
Tariffs are putting upward
pressure on costs for multina-
tional companies, forcing them
to look for ways to offset it.
Moreover, uncertainty about
the outlook for negotiations be-
tween the U.S. and China is
making it difficult for managers
to plan.
Both Japan and South Korea
have said the tariff impact is
particularly pronounced in
high-tech parts and materials
purchased by factories in China,
such as Japanese auto parts
and South Korean semiconduc-
tors. The Chinese factories use
those products to manufacture
finished goods, some of which
are exported to the U.S.
Surveys of purchasing man-
agers in Japan, Taiwan, South
Korea and Indonesia also
pointed to declines in manu-
facturing activity in August,

ContinuedfromPageOne

with mixed results in China. In

Europe reported drops in man-

ufacturing activity were most

pronounced in Germany, the

continent’s exporting power-

house.

“Trade wars and tariffs re-

main the biggest concerns

among producers, and the es-

calation of global trade war

tensions in August encouraged

further risk aversion,” said

Chris Williamson, chief busi-

ness economist at IHS Markit,

which conducts the surveys.

The survey of small U.S.

companies by Vistage World-

wide Inc., an executive coach-

ing organization, was taken last

month, just after President

Trump announced additional

tariffs on Chinese imports, but

before he ordered U.S. compa-

nies to start looking for alter-

natives to China. Forty-five per-

cent of the small firms—which

have revenue between $1 mil-

lion and $20 million—said the

GOP president’s tariff an-

nouncement would impact

their businesses.

In the survey, some U.S.

small-business owners said

they supported the tariffs, even

if they are painful in the short

run, and a majority said they

are optimistic about their fi-

nances. Also, tariffs are just one

factor contributing to changes

in the economic outlook.

But business owners on both

sides of the tariff issue said the

uncertainty—about if and when

the duties will be applied, how

large they will be and how long

they will remain in effect—is

making it hard to plan and is

hurting their businesses.

“It’s overwhelming. It’s ex-

hausting. It’s demoralizing,”

said Susan White Morrissey,

founder of White + Warren, a

cashmere brand in New York.

“My employees just want to

know what to do. This is prob-

ably the first time in my ca-

reer that I can’t give them the

answers.”

White + Warren this year

added five employees and

boosted inventory to increase

e-commerce sales, but the 30-

person company is struggling

to plan as the trade dispute

heats up. Tariffs imposed this

summer slashed profit on its

ribbed cashmere hats made in

China by 50%.

“It’s hard enough to adjust

to price increases, but it’s just

more difficult when you are

uncertain how policy will un-

fold in the future,” said Rich-

ard Curtin, a University of

Michigan economist who ana-

lyzed the Vistage data. “For

small firms that means being

more cautious in your invest-

ment and hiring plans.”

Wiscon Products Inc., a pre-

cision machine shop in Racine,

Wis., normally orders raw ma-

terials six months in advance,

but these days it is having

trouble getting customers to

decide what they need in three

weeks. One auto maker can-

celed a $2 million parts order

destined for China because of

escalating trade tensions.

The 75-year-old company

has replaced about 40% of lost

revenue through aggressive

marketing and expects to end

up stronger, with a more di-

versified customer base. Yet, it

has put off plans to buy new

machines.

“This is the strangest I’ve

ever seen it,” said Wiscon

President Torben Christensen,

who has run the company for

DimmerOutlook

Economic confidence among small U.S. firms fell to the lowest level since 2012, and global

manufacturing has contracted as the U.S.-China trade war escalates.

Sources: WSJ-Vistage Small Business Survey; IHS Markit

U.K.

Germany

Japan

South Korea

EXPANDING

CONTRACTING

65

40

45

50

55

60

2017 ’18 ’

U.S.SmallBusiness

ConfidenceIndex

Manufacturerspurchasingmanagers'indexes

2013 '14 '15 '16 '17 '18 '

80

90

100

110

120

130

Trade

Fallout

Ripples

Iran’s behavior has provoked

sharp debate in and around the

IAEA, the diplomats said. The

agency, they said, had recently

told member states it would

criticize Iran for not cooperat-

ing. But in a report released to

member states on Friday, the

agency made only a vague ref-

erence to the issue.

That decision could fuel

criticism that the IAEA is play-

ing down concerns to try to

protect the 2015 deal.

Mr. Netanyahu last Sep-

tember urged the IAEA to im-

mediately visit the site, ex-

pressing frustration the agency

hadn’t acted on his initial, pri-

vate warnings. U.S. officials,

rather than the IAEA, in July

forced a debate in the agency’s

board of governors over Iran’s

decision to stop complying

with all its commitments under

the nuclear deal.

The IAEA’s actions in this

case “continue a pattern of the

agency’s unwillingness to hold

Tehran accountable for the vio-

lations of its nuclear safeguard

obligations,” said Mark Dubow-

itz, chief executive of the Foun-

dation for Defense of Democra-

cies, a think tank which has

opposed the Iran deal.

The diplomats caution that

the radioactive material at the

site is almost certainly not use-

ful to Iran for amassing fuel for

a nuclear weapon.

They say it was likely left

over from work Iran did years

ago, which Western officials

say was aimed at learning how

to build a nuclear weapon. Iran

says its nuclear program has

always been for peaceful pur-

poses.

Nonetheless, the secret es-

tablishment of the site and the

storage of radioactive material

there was likely a breach of

Iran’s international so-called

safeguards commitments to

prevent the spread of nuclear

weapons and material, a key

pillar of the global nonprolifer-

ation system.

Iran’s past flouting of those

commitments was the basis of

the international sanctions re-

gime developed from the

mid-2000s against Tehran.

WORLD NEWS

Iran’s refusal to fully coop-

erate with the IAEA also ap-

pears to contradict the cooper-

ation it pledged to uphold with

the agency under the 2015 nu-

clear deal.

An IAEA spokesman said de-

tails of the agency’s work are

confidential. “A rigorous tech-

nical and legal process is fol-

lowed and any suggestion of

internal differences...is strongly

denied,” the spokesman said.

Fresh doubts about Iran’s

compliance come as senior Ira-

nian officials on Monday trav-

eled to Paris to continue talks

on a French initiative to reduce

tensions between Washington

and Tehran by providing Teh-

ran some relief from sweeping

U.S. sanctions.

After 10 hours of talks, Ira-

nian officials said Monday eve-

ning discussions would con-

tinue in the coming days.

Iran began to breach some

of its commitments under the

agreement in July. Later this

week, the country will say

what next steps, if any, it will

take to further reduce compli-

ance with the 2015 nuclear deal

in response to the U.S. with-

drawal.

Mr. Netanyahu told the U.N.

General Assembly last Sep-

tember that the Turquz Abad

site had contained 300 tons of

nuclear-related equipment, in-

cluding as much as 15 kilo-

grams of radioactive material.

The allegation came months

after Israel seized from an Ira-

nian warehouse a trove of doc-

uments detailing Iran’s past

nuclear work. The site was

cleaned out by the Iranians af-

ter Israel’s seizure of the docu-

ments. It long predated Mr.

Trump’s May 2018 withdrawal

from the nuclear deal.

Iran is stifling a United Na-
tions probe of its alleged stor-
age of nuclear equipment and
radioactive material in Tehran,
diplomats say, leading to fresh
concerns about its activities at
a critical moment for the fate
of the 2015 nuclear deal.
The diplomats said Iran has
refused to provide answers to
important questions raised by
the U.N.’s International Atomic
Energy Agency over allega-
tions—first made public by Is-
raeli Prime Minister Benjamin
Netanyahu a year ago—that
Iran had established a now-
dismantled site in Tehran to
store equipment and material
used during past nuclear weap-
ons work.
It is the first time Iran
seems to have refused to coop-
erate with the IAEA’s monitor-
ing of its activities since the
multination accord was imple-
mented in January 2016.
It comes as European pow-
ers, led by France, try to pre-
vent the deal’s collapse after
the U.S. withdrew from the
agreement in May 2018 and
then reimposed tight sanctions
on Iran, in violation of the deal.
Until recently, the IAEA re-
peatedly said Iran was meeting
all its commitments and coop-
erating with inspections.
Iranian officials in New York
didn’t immediately respond to
a request for comment. Iran
dismissed Mr. Netanyahu’s alle-
gations about the site last year.

BYLAURENCENORMAN

Iran Stalls U.N. Probe Into Nuclear Site

Lack of cooperation

with inspectors comes

as European diplomats

try to save atomic pact

Israel’s leader Benjamin Netanyahu told the U.N. General Assembly last September that an Iran site had contained nuclear equipment.

TIMOTHY A. CLARY/AGENCE FRANCE-PRESSE/GETTY IMAGES

the past decade. “It’s busy. The

economy is booming, but there

is great uncertainty. A lot of it

has to do with trade policy.”

Trade talks have mostly

stalled since late May, when ne-

gotiators were believed to be

close to a deal. Since then nego-

tiators have sought, so far with-

out success, to reach a limited

preliminary arrangement that

would have China committing

to buying more U.S. farm prod-

ucts and the U.S. agreeing to

ease off restrictions on China’s

Huawei Technologies Co.

Additional U.S. tariffs of 15%

on $156 billion of Chinese-made

smartphones, laptops, toys, vid-

eogames and other products

have been set for Dec. 15.

On Friday, Mr. Trump re-

jected the notion that his

trade policies were hurting the

U.S. economy. He blamed

“badly run and weak compa-

nies” for any business set-

backs and urged the Federal

Reserve to cut interest rates

to support the economy.

Argosy Cruises, a Seattle

tour-boat operator, recently

postponed plans to replace two

aging vessels after being told

that the 500-passenger boat

that cost $8.5 million two years

ago would now cost about $

million more. Boatyards blame

tariffs for the price increase,

said Argosy Chief Executive

Kevin Clark, who also worries

trade tensions are reducing the

flow of Chinese tourists.

“There needs to be some

kind of stabilization in the tariff

situation and pricing,” Mr. Clark

said. “I hate to sign a contract

for the next two years without

an element of certainty.”

Travis Luther, founder of

Queen Anne Pillow Co., a Den-

ver-based maker of high-end

bed pillows, said larger com-

petitors have accelerated pur-

chases to get ahead of tariffs,

something his six-year-old

company can’t afford.

“That’s not a very healthy

move for small companies or

upstarts,” Mr. Luther said.

To adapt, some companies

are relocating production. Lu-

miGrow Inc., a 30-employee

maker of LED lighting used in

horticulture, is shifting to a

factory in Malaysia just one

year after it moved production

to China from the U.S. to re-

duce costs.

Jay Albere, the Emeryville,

Calif.-based company’s chief

executive, supports tariffs but

not quick shifts in trade pol-

icy. One shipload of LED lights

was on its way from China

when higher tariffs were im-

posed this spring with just a

few days notice. “Just give me

the ability to plan for it and

make a smart business deci-

sion,” he said. “The lack of

certainty is really, really hard.”

—Kwanwoo Jun

and Chao Deng

contributed to this article.

Trade disputes escalated over the weekend when the U.S. imposed tariffs of 15% on Chinese goods.

ALEKSANDAR PLAVEVSKI/EPA/SHUTTERSTOCK

KABUL—With an accord on

the withdrawal of U.S. troops

from Afghanistan in sight, the

chief U.S. diplomat overseeing

talks with the Taliban shared

details of the proposed accord

with a crucial, but largely side-

lined, stakeholder: the Afghan

government.

During a Monday meeting at

the presidential palace, Afghan

officials said Zalmay Khalilzad

showed President Ashraf Ghani

a draft of the pact hammered

out with the insurgents, who

have refused to hold direct

talks with a government they

regard as an American puppet.

Mr. Khalilzad said for the

first time on Monday that the

U.S. will start to withdraw

5,000 troops from five military

bases in Afghanistan within 135

days after the deal goes into ef-

fect, provided other conditions

are met. He provided no further

details.

Mr. Ghani’s spokesman,

Sediq Seddiqi, said the presi-

dent and his aides would study

and assess the details of the ac-

cord, and reply to Mr. Khalilzad

in “a couple of days.”

In a sign that the path to a

comprehensive settlement of

the nearly 18-year war would

be rocky, an enormous explo-

sion rocked the capital late

Monday, as the local television

station’s interview with Mr.

Khalilzad promoting the U.S.-

Taliban deal aired.

At least five people were

killed and another 50 were

wounded, the Interior Ministry

said. More deaths were feared.

The Taliban later said they car-

ried out the attack.

Before flying to the Afghan

capital on Sunday, Mr. Khalilzad

tweeted from Qatar’s capital

Doha that the two sides had

completed their ninth round of

talks and were on the “thresh-

old” of a deal that would re-

duce violence and pave the way

for a “sustainable” peace. The

Afghan-born envoy said Mon-

day that the deal now awaits

President Trump’s approval.

The proposed U.S.-Taliban

accord calls for a phased with-

drawal of the estimated 14,

American military personnel in

Afghanistan, as well as other

foreign forces, in exchange for

assurances from the Taliban

not to allow al Qaeda, Islamic

State and other Islamist mili-

tant groups to operate in the

country.

BYCRAIGNELSON

U.S. Sets

Timetable

On Afghan

Troop Exit

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