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White House Declares US 'Era of Economic Surrender Is Over'

White House Declares US 'Era of Economic Surrender Is Over'

Tuesday, 24 July 2018 09:40 AM Current | Bio | Archive

The White House Twitter feed provided us with a tweet under the title: “The era of economic surrender is over. #MadeInAmerica,” which was, at least in my opinion, a somewhat strange tweet, coming from the White House.

Hence forth Americans are not to buy what they want to buy, they are to buy what their government, or at least one part of their government, tells them to buy.

The idea that buying domestically made products is good and buying foreign made products is bad is not economically efficient or indeed terribly irrelevant to the complex global supply chains of the 21st century.

It might be time to start thinking about what the world would look like if the United States becomes isolated as a "hermit kingdom" of the northern hemisphere with the multilateral trading order continuing outside the borders of the United States. (The term hermit kingdom can be used to refer to any country, organization or society which willfully walls itself off, either metaphorically or physically, from the rest of the world).

The role of multinationals in global trade is very significant. About 80 percent of global trade is part of long and complex supply chains that tend to be dominated by multinational companies. Multinationals have operations in several countries of course.

This means it is easier for U.S. multinational exporters to shift production offshore than ever before, if the barriers of trade between the United States and the rest of the world make it uneconomic for multinationals to produce domestically in the states.

Globally, multinationals have more staff in their home country than their sales or assets overseas would justify.

That means that employment in particular is a risk if global supply chains are threatened by tariffs or in other words consumer taxes on trade.

In the context of all this, we should recall that European Commission President Jean-Claude Juncker will meet with President Donald Trump in Washington for talks intended to head off a trade war. The last time Trump met him he called him “a brutal killer.”

The EU embodies much of what Trump’s “America First” world view opposes: It is multilateral in its essence, and probably the most ambitious sovereignty-pooling experiment the world has ever seen. Few personify that more than Juncker, who as prime minister of Luxemburg was an enthusiastic signatory of the 1991 Maastricht Treaty, that was the foundation for the European Central Bank and the euro.

When she spoke last week at the German Marshall Fund of the United States, a research institute, Cecilia Malmstrom, the European Union trade commissioner who will accompany Juncker said he would try to persuade Trump that his threat to raise tariffs on European car imports would jeopardize a $1 trillion trade relationship and 15 million jobs on both sides of the Atlantic.

But that’s not the end of the story. It’s also a fact that Trump’s complaints don’t end with trade, where the European Union (EU) runs a $150 billion surplus with the U.S. Trump has also taken the EU to task over security and competition policy, and he doesn’t hesitate to conflate all those concerns. That approach is fueling fears in Europe that it isn’t just about the details. When the U.S. president recently said he saw the EU as “a foe,” I think we should better believe that he meant it.

Anyway, we’ll have to wait and see what comes out and hope for the best.

China Fiscal Stimulus

Meanwhile in China, which is by the way still by far the biggest developing nation in the world, has announced a package of policies by the People’s Bank of China as well as by the Finance Ministry to boost domestic demand as trade tensions with the U.S. threaten to worsen China’s economic slowdown.

The measures go from a tax cut aimed at fostering research spending to special bonds for infrastructure investment and are intended to form a more flexible response to what they call “external uncertainties” than had been implied by budget tightening already in place for this year.

All this comes along with more liquidity into the banking system. Let’s not overlook the fact that the People’s Bank of China has already cut reserve ratios 3 times this year and has unveiled a range of measures for the private sector and small businesses.

Yes, this could be a renewed start of fiscal stimulus in China.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The idea that buying domestically made products is good and buying foreign made products is bad is not economically efficient or indeed terribly irrelevant to the complex global supply chains of the 21st century.
us, era, economic, surrender
Tuesday, 24 July 2018 09:40 AM
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