Mon. Jan 25th, 2021

Oscar Wilde once wrote That losing a parent can be considered as a misfortune. However, to lose two parents seems to be sheer recklessness.

One would be surprised that the same cannot be said about the Trump administration’s approach to economic policy. To engage in a budget stimulus at this late stage in the economic cycle as the Trump administration is doing now would be the most unfortunate step. However, now further compromising the US economic outlook by leading the country into a global trade war seems like the height of irresponsibility. This raises the possibility that the US economy will succumb to a painful economic downturn within the next 12 months.

The amount was cut in the next decade by about $ 1.5 trillion and public expenditure increased by about $ 300 billion over the next two years, this is unfortunate. Not only is the U.S. economy currently growing at a healthy clip already, it is at or beyond full employment, as Federal Reserve President Jerome Powell recently testified before Congress. The global economy is now characterized by very high debt levels and equity, bonds and credit market bubbles, all reminiscent of the period before the 2008 Lehman crisis.

At the moment embroiled in fiscal stimulus, the Trump administration is risking a large increase in interest rates in response to an overheating economy that could lead to the bursting of global asset and credit price bubbles.

This could happen when the Federal Reserve is forced to raise interest rates at a faster pace as it now plans to rekindle inflation. Alternatively, if the Fed is politically pressured not to raise interest rates in spite of the excess of the economy, it may result in the return of the bond holders. Those vigilantes should be expected to dump their bonds and thus push interest rates more on the view that the Fed was likely to lose control of inflation.

A singularly ill-timed budget policy would suffice to expect that the US economic recovery would derail in relatively short order. However, as the US and global economies fall into an economic downturn to ensure that President Donald Trump chose this special moment to raise the US steel and aluminum import duties by 25 percent and 10 percent respectively.

Political cartoon on economy

Inviting retaliation by US trading partners is almost certain. Europeans are already preparing to impose a proportional import duty on US Harley Davidson, Wisconsin cheese and Kentucky burbans, while Chinese are considering restricting US agricultural imports. This in turn could be another trigger for the bursting of the global asset price bubble, with unpleasant consequences for both the US and global economies.

Not short of the possibility of trade retaliation, Trump is warning Europeans that he will respond to any such move by imposing tariffs on European automobiles. He also seems to reiterate the possibility of a trade war by arguing that America would win by hand.

Sadly, Trump’s currency on trade reveals the disastrous consequences of beggar-my-neighbor policies in the inter-war period in general, and an alarming lack of knowledge about the 1930 Smoot-Hawley Tariff Act in particular . If there is a general consensus among economists from that experience, one thing is that trade wars have no winners and that such trade wars are not fit to be ruined for both the US and international economic prosperity.

It is also very regrettable that the Trump administration fails to understand that the trade deficit in arithmetic is the result of a country investing less than it did. Unless a country’s savings level falls below its investment level, it will run a trade deficit. It is true for what level of import duty it determines itself.

A major justification that the Trump administration proposes to impose import duties is that it wants to achieve more balanced trade. However, if the administration was serious about this objective, it would not raise import duties, instead it would try to raise the country’s low savings rate. At the very least, the administration will not be as helpful as it is to tax and public expenditure policies that will increase the country’s budget deficit and thereby increase its trade deficit.

For both the US and global economies, one expects the president to support his recent import duty proposals. However, given the recent disregard of the fundamental laws of economics by the administration, it is more likely that when the current round of import duties does not succeed in reducing the country’s trade deficit due to an increase in the budget deficit, by the President Will be doubled. Imposed further trade restrictions. As the President may have tweeted, it is too big.

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