Trade frictions are nothing new to the U.S.-China relationship. Over the years they’ve ebbed and flowed, but were managed with enough deft to avoid major meltdowns. That seems likely to change under President Donald Trump, an economic nationalist who sees trade as a zero-sum game and the United States emerging “the winner” of a trade war with China.
Media and social media have been percolating – mostly with invective – over President-elect Trump’s “deal” to keep Carrier and its 1,000 jobs from moving to Mexico. I am among the many critics of this ad hoc, interventionist approach to retaining or attracting companies to perform value-added, job-creating activities in the United States.
In the years ahead, U.S. economic growth is projected to remain modest at best. Consequently, for many firm interested in higher returns, international expansion is essential. Plus, markets outside the United States represent 73 percent of global purchasing power, 87 percent of economic growth, and 95 percent of world consumers, reports the U.S. Chamber of Commerce.
What world-changing behemoth that begins with the letter “C” presents the greatest threat to U.S. commercial and strategic interests in the Asia-Pacific region? Wrong. Even in the wake of this week’s potentially provocative tribunal ruling against Beijing’s territorial claims in the South China Sea, the greatest threat remains Congress, not China.
The oil industry, and perhaps the global economy, is standing at a crossroads. Down one path, the storm is over — and it has been a major storm. Tens of thousands of jobs lost, billions of dollars in capital evaporated, and the promise of energy independence broken. Yet down this path is the promise of recovery and renewed growth, albeit slow.
It’s a presidential election year so the quadrennially-maligned U.S. trade deficit is taking its lumps. Donald Trump says the trade deficit means the United States is losing at trade, and it’s losing because U.S. trade negotiators aren’t smart enough. Bernie Sanders believes the trade deficit deprives the economy of production and good jobs. Meanwhile, some of the economics commentariat argue that trade deficits are bad because they represent a burden on future generations — a debt that must be repaid.
Two months after negotiators reached a deal six years in the making, the Trans-Pacific Partnership is in trouble. Prospects for ratification of this deal by this Congress appear to be somewhere between questionable and doubtful. That could change in the months ahead, but if the TPP spills over to the next Congress and administration — with all of the uncertainty that portends — President Obama will have his own miscalculations to blame. That and Hillary Clinton.
The Federal Reserve has kept its target range for the federal funds rate at 0 to 0.25 percent since December 2008. This is often referred to as the Fed’s “zero interest rate policy,” or ZIRP. The purpose of near-zero overnight rates — and forward guidance to convince markets that those rates will be maintained — has been to affect the entire rate structure: keeping all rates lower than they would have been in a free capital market.
The Federal Reserve’s unconventional monetary policy has pumped up asset prices by suppressing interest rates and has misallocated capital. It’s time to end the mispricing of assets and let markets determine rates without interference from the Fed. Waiting to normalize monetary policy will further inflate asset bubbles and make the ultimate normalization of rates more costly.
Influential members of the Saudi Arabian government believe that the United States — the kingdom’s most valuable strategic ally since 1945 — has abandoned Riyadh on a host of regional issues, most notably Iran’s nuclear program. As the Saudis respond by seeking to enhance their political and economic relations with countries other than the United States, France sees an opportunity to supplant Washington as Riyadh’s closest ally.
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