Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects

Economics / Protectionism Apr 14, 2019 - 06:35 PM GMT

By: Dan_Steinbock

Economics Recently, IMF cut global growth forecasts. As US-Sino trade talks will give way to next trade wars, new tariff wars will not resolve US deficits but will further impair global economic prospects.

Ever since the US-Sino trade talks began almost four months ago, the United States has pushed for a broad commitment focusing on China’s economic practices, including participation of U.S. firms in certain industries and protection of U.S. intellectual property rights (IPRs).

In a recent CNBC interview, Treasury Secretary Steven Mnuchin claimed that the countries had “pretty much agreed” on an enforcement mechanism for a trade deal. After his meeting with the Chinese delegation last week, President Trump stated that negotiators may need four more weeks to package the deal.


But the enthusiasm may prove premature.

The state of US-Sino trade talks

As the last globalist in the Trump administration, Mnuchin’s views carry some weight, but he lacks clout to enforce those views. That’s been the case since Gary Cohn, Mnuchin’s former Goldman Sachs colleague, resigned from the White House ahead of the tariff wars. In turn, Commerce Secretary Wilbur Ross has proven too weak, reluctant and old (81 years) to press for compromise.

That’s why trade talks are led by Peter Navarro, Director of National Trade Council, and Robert Lighthizer, U.S. Trade Representative. The former is an advocate of trade mercantilism, who has a dark track record in China-bashing; the latter’s trade wars began against Japan in the Reagan administration.

In addition to enforcement mechanisms, the two are pressing for a pact that would allow US tariffs on Chinese goods to snap back in case of violations - but without permitting China to retaliate in response.

Understandably, Chinese negotiators consider such conditions unacceptable. Such conditionality has surprised even Craig Allen, President of US-China Business Council, who believes that Mnuchin may have been too optimistic about the deal, if it is burdened by a conditionality clause.

Indeed, US business groups tend to focus on commitments, including the proposed “enforcement offices.” They dislike negotiating tactics that needlessly prolong the talks and may undermine the progress achieved.

Chinese Vice-Premier Liu He has expressed greater caution by stressing that, by the end the proposed four weeks, the two countries may learn whether a trade deal could be reached. And even if a final deal is achieved, it will take another year or two to verify the structural changes associated with the pact.

Trade wars' next targets

However, a US-China deal will not resolve US trade deficits, which have increased for half a century. The imbalances began in the postwar era after the recovery of the key EU economies - UK, Germany, France and Italy - and the subsequent rise of Japan. Toward the late 20th century, the deficits reflected the emergence of the four dragons; i.e., Taiwan, South Korea, Hong Kong and Singapore. China’s role in these deficits became prominent in the 2000s.

Today, the largest deficits prevail with China, US NAFTA partners (Mexico, Canada), key EU countries (Germany, Ireland, Italy), ASEAN (Vietnam, Malaysia) and India. China has been targeted first, but others will follow.

Last year, Mexico and Canada were pressured to a revised “US first” regional pact. Friction has been steadily rising with Japan and Germany. And Trump has pledged to extend the trade war to ASEAN - where the deficits are likely to climb if US companies begin to relocate.

Despite half a century of promises to bring an end to deficits, US dependency on trade deficits has only deepened as Washington has become increasingly dependent on foreign financing and sovereign debt (which now exceeds $22.2 trillion, or 106% of US GDP). The net effect is a falling trend line (Figure).

Figure    U.S. trade deficits have deepened for half a century (US$ Million)

Why tariff wars won’t resolve US deficits

Do the US tariff wars make economic sense? No. Here are some reasons why:

US deficit issue is multilateral and regional, not bilateral and national. Trying to resolve it by forcing the bilateral trade deficit down is a bit like mimicking the fictional story of the little Dutch boy who discovered a leak in the dyke and stuck his finger in it to save his country. That’s Trump’s strategy.

Unfortunately, it ignores the dyke’s many other leaks and may thus make the flood more likely.

Second, Trump’s trade hawks presume that international trade is a competition between companies representing different countries. They ignore the fact that, for decades – and particularly since the 1980s – national industry leaders have built multinational value activities around the world. Consequently – as even the OECD has concluded - conventional data on bilateral trade deficits can be misleading, due to multinationals’ global supply chains.

Third, it is the overall size of the trade balance that matters, and that is largely a function of macroeconomic forces, such as domestic savings and investment. If the US domestic investment continues to exceed savings, it will have to continue to import capital and will have a large trade deficit.

Since late 2017, the Trump administration has made this challenge much worse, thanks to large tax cuts, which have caused US fiscal deficits to soar. That is likely to cause the trade deficit to increase, irrespective the outcome of the trade war. Of course, one way to avoid this is that the White House will lead the US into a recession, with incomes declining adequately for investment and imports to plummet – as with the aftermath of the 2008 crisis (see the Figure).

Why tariff wars will weaken global prospects

Unfortunately, that path would further penalize American middle-class and working people, but it would also have even more severe implications internationally. It has potential to further derail global economic prospects (which would harm the very same US multinationals Trump claims to support).

As US tariff wars undermined the global recovery momentum in early 2018, the IMF now predicts that global economic activity is notably slowing. Global growth is projected to slow to 3.3% in 2019.

In the absence of more positive signals, the international environment is faltering toward a darker path.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

© 2019 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dan Steinbock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules