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Economists on Trump Trade Plans: 'Risks of Miscalculation Are High'

Economists on Trump Trade Plans: 'Risks of Miscalculation Are High'

(AP/Brennan Linsley)

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Thursday, 17 November 2016 03:38 PM Current | Bio | Archive

During the presidential campaign that lead to his election, Donald Trump declared his commitment to a protectionist agenda but economists and fund managers alike are not so sure of the outcome if the reality-TV star and businessman holds true to his promises.

 

“His trade and tariff policy could be negatively disruptive to a global-trade environment, which is growing in an inferior sense to an already sluggish GDP,” said Matt Ward, fund manager and head of U.S. large cap equities with Schroders in London.

President-elect Trump claimed he would renegotiate the North American Free Trade Agreement (NAFTA), refuse to sign the Trans-Pacific Partnership (TPP), declare China a currency manipulator and potentially withdraw from the World Trade Organization.

“The risks of miscalculation are high and could lead to very damaging trade wars, which could have a negative impact across the U.S. economy, not just those areas directly linked to international trade,” said Alan Levenson, chief U.S. economist with T. Rowe Price. “I am not aware of any country in history that ever isolated its way to prosperity.”

Walking into the White House on January 20, once Trump is inaugurated, he faces a deficit of $5.3 trillion.

“My expectation is that he will execute a few selective tariffs rather than across-the-board tariff increases, which will likely increase the cost of consumer goods,” said Keith Wade, chief economist with Schroders in London

If carried through fully, however, such drastic changes to trade policy could have a potentially strong impact on U.S. and international economies. That’s because Mr. Trump has fairly extensive unilateral executive authority to take action against trade partners.

“The high probability of seeing tariffs increase on some trade agreements between the U.S. and other countries will have a recessionary impact for the American consumer with limited trade growth globally,” said Aymeric Forest, head of multi-asset investments in Europe with Schroders in London.

Throughout 2016, Mr. Trump said that if elected he would grow the U.S. economy by 4% and create some 25 million new jobs.

Economists say the numbers just don’t add up.

“How can he create 25 million jobs when there are only 8 million people unemployed,” Wade quipped while lecturing at Schroder’s annual investment conference in London on November 17. “He might increase the participation rate but to fill 25 million jobs, Mr. Trump would have to increase immigration.”

Having promised to build a wall between U.S. and Mexican soil to stop the flow of illegal immigrants, it’s unlikely that Trump will budge on his anti-immigration philosophy, which might not bode well for the economy overall.

“If we slow immigration of working-age adults, there’s not enough growth in the rest of the U.S. workforce or the productivity rate to grow the economy very fast,” Levenson said. “Most of our net population growth comes from immigration.”

While outgoing President Barack Obama’s presidency saw inflation rise by only 12.4% since January 2009, according to the Bureau of Labor Statistics’ Consumer Price Index, the pursuit alone of creating 25 million jobs will likely result in higher prices and higher inflation for the U.S. economy, according to Wade.

“The underlying problem that President-elect Trump has tapped into that enabled him to win the U.S. presidential election is not about the level of unemployment,” Wade said.

“The problem with the U.S. economy is productivity growth. It has slowed down over the last few years and the economy has also slowed.”

Juliette Fairley is an author, lecturer and TV host based in New York.

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During the presidential campaign that lead to his election, Donald Trump declared his commitment to a protectionist agenda but economists and fund managers alike are not so sure of the outcome if the reality-TV star and businessman holds true to his promises.
donald trump, trade, economists, fund managers
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Thursday, 17 November 2016 03:38 PM
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