Inconvenient Truths About the US Trade Deficit
Reducing the US trade deficit requires Americans to save more or invest less. On their own, policies that open other countries’ markets to US products, or close US markets to foreign products, will not change the overall trade balance.
New Life for the SDR?
The rise of anti-globalization political movements and the threat of trade protectionism have led some people to wonder whether a stronger multilateral core for the world economy would reduce the risk of damaging fragmentation. If so, enhancing the role of the IMF's incipient global currency may be the best option.
Crouching Donald, Paper Tiger
Donald Trump’s comments about China during the US presidential campaign didn’t exactly bolster high hopes for Sino-American relations once he was elected. But the two leaders' summit at Mar-a-Lago showed that even a president as reckless as Trump knows that the US cannot afford to antagonize the Chinese.
A Fiscal Reality Test for US Republicans
After failing to "repeal and replace" the Affordable Care Act, US President Donald Trump and congressional Republicans are now pursing tax reform, as if this will be any easier. It won’t be, as evidenced by the fact that all of the Republicans’ initial proposals are already dead in the water.
Growing Out of Populism?
After nine dreary years of downgrading their GDP forecasts, macroeconomic policymakers around the world are shaking their heads in disbelief. Despite a populist-propelled wave of political tumult, global growth is actually set to outperform expectations in 2017.
Delivering on Promises to the Middle Class
US President Donald Trump owes his electoral victory largely to the older white middle- and working-class voters who have missed out on the benefits of economic growth over the last 30 years. But his administration's economic program will not deliver the reversal of economic fortune his key constituency was promised.
Vladimir Putin and other post-communist autocrats sell their system of “illiberal democracy” on the basis of pragmatism, not some universal theory of history. But while they have certainly been effective in stirring nationalist sentiment and stifling dissent, they have been less successful at nurturing long-term economic growth.
How to Handle an Oil Shock
The global oil market is a volatile place, and the fate of countries that have treated adverse shocks as temporary and reversible, and were then proven wrong, has seldom been encouraging. Gulf producers, by going on a borrowing binge, could be setting themselves up for future pain.
The Temptations of a Resilient China
Another growth scare has come and gone for the Chinese economy, with export growth up strongly in the first two months of 2017. For the country's policymakers, the challenge now is to stay focused on executing their domestic strategy, rather than seeking to replace the US at the center of the global system.
Robotization Without Taxation?
The public reaction to recent proposals that robots be taxed when they replace human labor has been largely negative. But a moderate tax on robots – even a temporary levy that merely slows the adoption of disruptive technology – seems like a natural and obvious component of any policy to address rising inequality.
America’s Confidence Economy
While financial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in hard data, such as GDP growth, economists and policymakers remain unsure. Whether their doubts are vindicated will matter for both the US and the world economy.
What’s a President to Do?
Donald Trump took office promising a raft of sweeping economic-policy changes. He has quickly discovered, like previous US presidents, that America’s political system is designed to prevent rapid, large-scale change, by interposing formidable institutional obstacles.
Trump’s Virtual Wall
The proposed border adjustment tax in the US has not seeped into public consciousness in nearly the same way as Trump’s physical wall has. But the tax-and-subsidy scheme could end up affecting the average American a lot more – and not necessarily in a good way.
America’s Bad Border Tax
US Republican leaders claim that a border-adjustment tax – which would effectively subsidize US exporters and penalize importers – would improve the US trade balance and boost domestic production, investment, and employment. They are wrong.
Addicted to Dollars
Since the end of World War II, America’s share of global output has fallen from nearly 30% to about 18%, yet the US dollar retains its dominant position as the world’s reserve currency – and by a solid margin. When – and how – will that change?
From Bad to Worse for Puerto Rico
The island's deep and long-lasting recession has made its debt position unsustainable. But the latest fiscal plan imposed by the US commonwealth's federal overseers openly assumes that a Venezuela-scale depression will somehow bring about recovery.
Europe or Anti-Europe?
Since the 2008 financial crisis, the conventional wisdom has been that a long, difficult recovery for eurozone economies will eventually lead to strong growth. But this narrative is losing credibility, as various trends suggest that Europe is trapped in a semi-permanent low-growth equilibrium.
Don’t Cry for Corporate America
In an ideal world, it would be nice to streamline, simplify, and even reduce tax and regulatory burdens on US businesses. But business is not the weak link in the US economic chain; workers are, because economic returns have shifted dramatically from the providers of labor to the owners of capital over the past 25 years.
Tony Blair’s Democratic Insurrection
The former UK leader’s recent call for voters to rethink leaving the EU is an Emperor’s New Clothes moment. Blair is now an unpopular figure, but his voice is loud enough to carry above the crowd of flatterers assuring Prime Minister Theresa May that her naked gamble with Britain’s future is clad in democratic finery.
Boosting South Africa’s Diversity Dividend
South Africa will need much more than improved economic governance if it is to reduce inequality and achieve strong growth. In particular, the private sector must deepen its efforts to improve economic inclusion, and capitalize on the well-known benefits of greater diversity in the workforce and the boardroom.
How to Survive the Trump Era
In barely a month, US President Donald Trump has managed to spread chaos and uncertainty – and a degree of fear that would make any terrorist proud – at a dizzying pace. While most elected officials welcome being all things to all people, Trump has left no room for doubt about who he is.
Trump the Reluctant Multilateralist
US President Donald Trump did not take office as a committed multilateralist. But even a president committed to putting “America first” now seems to recognize – at least with respect to NATO – that a framework through which countries can pursue shared goals is not a bad thing.
Why Trump Can’t Bully China
As US President Donald Trump proceeds to destabilize the post-war global economic order, much of the world is collectively holding its breath. While Trump's supporters defend the economic rationale of his actions, most economists view abdication of US global leadership as a historic mistake.
The End of Trump’s Market Honeymoon
Expectations of stimulus, lower taxes, and deregulation might boost the US economy and the stock market’s performance in the short term. But US President Donald Trump's inconsistent, erratic, and destructive policies will take a heavy toll on domestic and global economic growth in the long run.
Is the Deflation Cycle Over?
After a decade of deflationary pressure, central banks will probably not overreact if inflation overshoots their targets in the near term. In fact, there is now growing support for higher inflation targets, to give central banks more space to lower interest rates in the event of a future recession.
Three Surprises in 2017
Donald Trump’s economic policies are likely to produce higher US inflation and interest rates, and more dollar appreciation, than financial markets expect. But Europe could stabilize after France's presidential election, ushering in a period of healthy economic growth and strong financial performance.
An Unstable Economic Order?
The retreat of the advanced economies from regional and global institutions has received a lot of attention lately. But while the destabilization of multilateral economic and financial structures could be particularly devastating for developing countries, the entire global economy will be adversely affected if the trend continues.
Four Certainties About Populist Economics
While few anticipated the British vote to leave the EU and Donald Trump's election as US president, neither outcome should have been all that surprising: disaffected voters were rejecting economic models that had produced high levels of inequality. The question now is what will replace those models.
China’s Big Sticks
The Trump administration's China-bashing strategy is based on the mistaken belief that a newly muscular US has all the leverage in dealing with its presumed adversary, and that any Chinese response is hardly worth considering. Nothing could be further from the truth.
Donald Trump’s presidency is a symptom of an interregnum between economic orders – a period that will result in a new balance between state and market. While his administration’s economic policies are unlikely to provide the right answer, they may at least show the world what not to do.
The Illusions Driving Up US Asset Prices
Speculative markets have always been vulnerable to illusion, and in the US, two have been sustaining asset-price gains since November's presidential election. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of an illusion are difficult to predict.
The Trump Deficit
It is a post-financial-crisis myth that austerity-minded conservative governments always favor fiscal prudence while redistribution-oriented progressives view large deficits as the world’s biggest free lunch. This simplistic perspective badly misses the true underlying political economy of deficits.
Trump Before Trump
Understanding the political success of US President-elect Donald Trump is not easy, and there have been many glib comparisons with earlier populist US politicians, from Huey Long to George Wallace. But the most revealing comparison may be with an historical figure from another country: the British nativist firebrand Enoch Powell.
“America First” and Global Conflict Next
When America pursued “America first,” policies in the 1920s and 1930s, it brought on the Great Depression and helped sow the seeds of World War II. If US President-elect Donald Trump shifts US geopolitical strategy similarly toward isolationism and unilateralism, there is little reason to expect a better outcome.
Will Dollar Strength Trigger Intervention in 2017?
While it is quite plausible to expect that Dona'd Trump’s incoming US administration will want to reverse the dollar’s climb, it is equally plausible that no other major economy will help. If the strong dollar prompts intervention in currency markets in 2017, the most likely scenario is one in which the US intervenes alone.
Open Society Needs Defending
Open societies are in crisis, and various forms of closed societies – from fascist dictatorships to mafia states – are on the rise. Because elected leaders failed to meet voters’ legitimate expectations and aspirations, electorates have become disenchanted with the prevailing versions of democracy and capitalism.
A Growth Agenda for China
At a time when the US is poised to turn inward, China’s economic performance is more important globally than ever. Whether China can achieve sustainable growth patterns in the coming years will depend on several key factors, the most important being internal
Trump’s Gathering Trade War
Donald Trump's use of foreign trade as a lightning rod in his presidential campaign is not an uncommon tactic for candidates at either end of the political spectrum. What is unusual is that he has not moderated his anti-trade tone since winning, despite the potentially disastrous consequences for the US and the world.
The Crisis of Market Fundamentalism
When a particular model of capitalism is working successfully, material progress relieves political pressures. But, as we saw in 2016, when the economy fails – and the failure is not just a transient phase but a symptom of deep contradictions – capitalism’s disruptive social side effects can turn politically toxic.
The International Barriers to Trump’s Economic Plan
With Republicans holding majorities in both houses of Congress, US President-elect Donald Trump should have a relatively clear road ahead to implement his domestic economic agenda. But if Trump is to deliver the high growth he has promised, he will have to overcome external barriers as well.
Bad News for America’s Workers
There really is no silver lining to the cloud that now hangs over the US and the world. As bad as President-elect Donald Trump's administration will be for America’s economy and workers, its policies on climate change, human rights, the media, and ensuring peace and security are likely to be no less damaging for everyone else.
Donald Trump and the New Economic Order
Since the end of World War II, the hierarchy of economic priorities has been relatively clear: build a prosperous and open world order first, then try to generate inclusive and sustainable national growth patterns. Now, a reversal seems to be underway, with far-reaching consequences for the global economy.
Ten Consequences of Trump
With the Republican Party in full control of the US government, fiscal stimulus will boost economic growth in the short term. But enacting large tax cuts and boosting public spending in an economy already nearing full employment implies accelerating inflation, higher interest rates, or probably some combination of the two.
Sustaining the Trump Rally
Since Donald Trump's victory in the US presidential election, stock markets have rallied and the dollar has soared. Explaining these unforeseen market responses could provide a glimpse into what the next few months hold in store for the US economy.
The Achilles’ Heel of Trumponomics
The US president-elect's economic strategy is severely flawed: its protectionist bias collides head-on with the imperative of increased US reliance on foreign saving and trade deficits in order to sustain economic growth. A saving-short, protectionist America is a country on a path to nowhere.