Economic boom, or bust? Or both?

Two contrasting views on economic prospects in the US. Given it’s size the economy in the US will impact on the rest of the world, including New Zealand.

Kevin Brady, Republican member of Congress and chairman of the House Ways and Means Committee writes (WSJ): Six Months After Tax Reform, Something Big Is Happening

Six months ago, Republicans in Congress joined with President Trump to redesign America’s tax code and enact sweeping tax cuts. We were determined to let families and local businesses keep more of what they earn. The new tax code was built to help American companies and workers compete and win anywhere in the world.

Now something big is happening to America’s economy. Since January, more than one million jobs have been created.

In only six months, the economy has been reinvigorated—and the best is yet to come. That’s because the new tax code leapfrogs America’s competitors abroad. The U.S. is now at the head of the pack—one of the best places on the planet to find that next job, to build that new manufacturing plant, or to set up company headquarters.

As a result, businesses of all sizes are now investing in American workers and communities. They are bringing back their dollars from overseas and investing at home again. It’s no coincidence that small-business optimism has hit its highest reported level in 35 years.

There is a new hope and a new optimism that wasn’t here before

Given the choice between keeping taxes high and allowing families to keep more of their money, Republicans chose—and continue to choose—the American people. Empowering families to run their own lives is at the heart of the American Dream. It’s the key to our nation’s economic success, and it’s the reason that, six months into tax reform, Americans are more hopeful about their future.

But domestic tax rates aren’t the only thing that affects the US and world economies. Not everyone is this hopeful about the economic future.

Nomi Prins (The Nation): Donald Trump’s Trade Wars Could Lead to the Next Great Depression

Leaders are routinely confronted with philosophical dilemmas. Here’s a classic one for our Trumptopian times: If you make enemies out of your friends and friends out of your enemies, where does that leave you?

Let’s cut through all of this for the moment and ask one crucial question about our present cult-of-personality era in American politics: Other than accumulating more wealth and influence for himself, his children, and the Trump family empire, what’s Donald J. Trump’s end game as president?

If his goal is to keep this country from being, as he likes to complain, “the world’s piggy bank,” then his words, threats, and actions are concerning. However bombastic and disdainful of a history he appears to know little about, he is already making the world a less stable, less affordable, and more fear-driven place.

Trump’s approach may force the world into sorting out some shortcomings of current trade arrangements, but it has major risks.

What the American working and the middle classes will see (sooner than anyone imagines) is that actions of his sort have unexpected global consequences. They could cost the United States and the rest of the world big-time.

Could.

So far, President Trump has only taken America out of trade deals or threatened to do so if other countries don’t behave in a way that satisfies him. On his third day in the White House, he honored his campaign promise to remove the United States from the Trans-Pacific Partnership, a decision that opened space for our allies and competitors, China in particular, to negotiate deals without us. Since that grand exit, there has, in fact, been a boom in side deals involving China and other Pacific Rim countries that has weakened, not strengthened, Washington’s global bargaining position.

Meanwhile, closer to home, the Trump administration has engaged in a barrage of NAFTA-baiting that is isolating us from our regional partners, Canada and Mexico.

Trump is also annoying Britan and the EU over his trade barrages.

In the past four months, Trump has imposed tariffs, exempting certain countries, only to reimpose them at his whim. If trust were a coveted commodity, when it came to the present White House, it would now be trading at zero.

His supporters undoubtedly see this approach as the fulfillment of his many campaign promises and part of his classic method of keeping both friends and enemies guessing until he’s ready to go in for the kill. At the heart of this approach, however, lies a certain global madness, for he now is sparking a set of trade wars that could, in the end, cost millions of American jobs.

“Could, in the end, cost millions of American jobs” contrasts with Brady’s “more than one million jobs have been created”.  In fact both could be correct. Short term gains could disappear if Trump tirades turn trade into a turkey and the economy goes bad.

As the explosive Group of Seven, or G7, summit in Quebec showed, the Trump administration is increasingly isolating itself from its allies in palpable ways and, in the process, significantly impairing the country’s negotiating power.

If you combine the economies of what might now be thought of as the G6 and add in the rest of the EU, its economic power is collectively larger than that of the United States. Under the circumstances, even a small diversion of trade thanks to Trump-induced tariff wars could have costly consequences.

Good international relations generally means better outcomes. Wars of any kind are likely to make things worse.

A recent report by Andy Stoeckel and Warwick McKibbin for the Brookings Institution analyzed just such a future trade-war scenario and found that, if global tariffs were to rise just 10 percent, the gross national product (GDP) of most countries would fall by between 1 percent and 4.5 percent—the US GDP by 1.3 percent, China’s by 4.3 percent. A 40 percent rise in tariffs would ensure a deep global recession or depression.

In the 1930s, it was the punitive US Smoot-Hawley tariff that helped spark the devastating cocktail of nationalism and economic collapse that culminated in World War II.

The current incipient trade war was actually launched by the Trump administration in March in the name of American “national security.”

Using “national security” as a loose excuse for abuse is bad enough, but it has some disturbing parallels.

From the United States Holocaust Memorial Museum:

As an absolute principle of national security, Nazi ideology called for the elimination of “racially inferior” peoples (such as Jews and Roma) and implacable political enemies (such as communists) from regions in which Germans lived.

Back to Prins:

The global economic system first put in place after World War II was no longer working particularly well even before President Trump’s trade wars began. The problem now is that its flaws are being exacerbated.

Once it becomes too expensive for certain companies to continue operating as their profits go to tariffs or tariffs deflect their customers elsewhere (or nowhere), one thing is certain: It will get worse.

I don’t think that’s a certainty, but it is a real possibility if Trump’s ‘negotiations’ turn trade to custard.

Is the US headed for boom, or bust?

It could easily be both. Busts often follow booms.

 

 

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6 Comments

  1. Reply
  2. Blazer

     /  June 23, 2018

    Don’t know how this is relevant…’As an absolute principle of national security, Nazi ideology called for the elimination of “racially inferior” peoples (such as Jews and Roma) and implacable political enemies (such as communists) from regions in which Germans lived.’

    Prins must be being quoted out of context.’
    ‘The global economic system first put in place after World War II was no longer working particularly well even before President Trump’s trade wars began.’

    The neo liberalism of Thatcher,Reagan of the 80’s ,and the repeal of Glass Steagal has had a greater impact than the Marshall Plan,Bretton Woods,NATO and so on as far as economic ‘systems’ go in this day and age.

    Exploitation via the military/industrial complex has accelerated ,as has inequality and the massive growth in complex financial instruments that have exploded and affect every facet of every countries economy through unpayable ,compounding debt.

    Banking reform is the most vital aspect of current economics that needs to be addressed.

    Reply
  3. Or not.

    NBR could survive. Or not.

    Reply
  4. Reply
    • Corky

       /  June 23, 2018

      Hey Chris..it’s call political bias. And liberals are masters of the art. However, it doesn’t matter what you call it, Labour cannot be saved from Andrew Little and Jane Kelsey,

      Reply
  5. Griff

     /  June 23, 2018

    I will leave this here.
    http://www.usdebtclock.org/

    Reply

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