US Economic Self-Destruction Imminent?

Financial FAQs

The International Monetary Fund has just warned that President Trump’s trade wars could cost the world’s economies some $430B in lost growth. The Washington-based organisation said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5 percent by 2020 in worldwide Gross National Product.

And NYU economist Nouriel Roubini has now jumped on the critics’ bandwagon contra the Trump tariffs with his contention that trade wars will cause rising inflation and economic uncertainty at the wrong time.

Last year was a time of ideal growth conditions, but this year? “The combination of strong growth, low inflation, and easy money implied that market volatility was low,” said Professor Roubini about 2017. “And with the yields on government bonds also very low, investors’ animal spirits were running high, boosting the price of many risky assets…Many commentators even argued that the decade of the “new mediocre” and “secular stagnation” was giving way to a new “goldilocks” phase of steady, stronger growth.”

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Graph: Trading Economics

But this year, says Roubini, for the first time in a decade the biggest risks are now stagflationary (slower growth and higher inflation). “These risks include the negative supply shock that could come from a trade war; higher oil prices, owing to politically motivated supply constraints; and inflationary domestic policies in the U.S.”

This is while President Trump has abandoned the Trans Pacific Partnership with 11 other Asian countries and Australia (who are forming their own trade partnership), and is attempting to bust up our trade alliances with the EU, Canada, and Mexico.

Although all economies would suffer from further tariff escalations, the US would find itself “as the focus of global retaliation” with a relatively higher share of its exports taxed in global markets. “It is therefore especially vulnerable,” says the IMF.

Trump’s trade wars have escalated from $3.6 million in tariffs first imposed in January against 18 types of Chinese solar panels and washing machines to more than 10,000 products worth some $362 billion, as China, Canada and the European Union has retaliated with their own tariffs, according to the New York Times.

And the Guardian says the European commission, the EU’s executive arm, warned the White House recently it would be prepared to use tariffs against as much as $300bn(£228bn) of US products should Donald Trump slap higher taxes on European automotive imports to America. The president had threatened last month to impose tariffs of 20% on imports of cars from the EU after Brussels carried through plans to tax American consumer goods – such as whiskey, cigars and Harley-Davidson motorcycles – in retaliation against US tariffs on European steel and aluminum.

This is not how to practice “The Art of the Deal”, if President Trump ever did know how. His past record of lawsuits, bankruptcies, and links to Mafia figures and Russian Oligarchs belies this. Conflating friends with enemies now pits the whole world against the US in trade matters.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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