Microeconomic impact of the White House’s trade measures

Nails, lobsters, peanut butter or bourbon all these products are suffering from the trade measures taken by the White House. The disruptions they imply are just anecdotal now but this will change progressively as these measures will persist. From microeconomic at the beginning, the impact will become macroeconomic and at the expenses of all.

Read more here

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US sanctions to be restrictive for European companies

Donald Trump’s announced sanctions on Iran are proving to be quite a headache for European companies that had re-expanded their business in the market since the July 2015 agreement.

It is vital here to draw a distinction between a potential political nuclear agreement between Iran and the other signatories of the previous 2015 accord (apart from the US) on the one hand and the issue of economic sanctions on the other, which would severely hamper Iran’s economic growth as foreign companies working with the country would be subject to hefty penalties from the US. Before 2015 we witnessed the extent of such penalties on banks that had tried to evade sanctions, and a number of banks had actually continued to steer clear of Iran, even after the 2015 agreement as they were not convinced it would last. In this respect, the timing of the ZTE affair is perfect. The Chinese company operating in the telecoms sector and specializing in 5G technology is highly dependent on US components to pursue its growth. After pleading guilty of shipping US components to Iran and North Korea in 2016, it is now facing legal action for failing to comply with measures it was supposed to take against managers involved in the affair. Continue reading

Oil above $75/bbl for long

Oil price trends have shifted since the start of April, with figures set on a range of $70–75, compared with a previous figure of around $67 on average, i.e. higher than figures seen since late 2014. This reflected the impact of demand driven by world growth.

The chart below shows that trend altered after April 6, when the White House implemented sanctions against Russia, with subsequent threats on Iran merely serving to amplify this trend. This morning after Donald Trump’s decision on Iran it is above 75 as shown on the graph. Continue reading

Economists are rebelling on economic protectionism

US economists are mobilizing against Donald Trump’s protectionist measures. The interdependence of developed and emerging countries, but also the dependence on global trade are today too important to take the risk of changing the rules abruptly. In view of the on cooperative political climate, we can not rule out retaliation and escalation that would be very detrimental to growth, employment and standard of living. The experiences of the past must necessarily help us to think.

“Over a thousand economists have written to Donald Trump warning his “economic protectionism” and tough rhetoric on trade threatens to repeat the mistakes the US made in the 1930s, mistakes that plunged the world into the Great Depression.

The 1,140 economists, including 14 Nobel prize winners, sent the letter on Thursday amid an escalating row over trade between the US and the European Union. Trump has imposed tariffs on steel and aluminium imports but has granted temporary reprieves to the EU, Australia and other countries.

“In 1930, 1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act,” the authors write, citing a trade act that many economists argue was one of the triggers for the Great Depression….”

Continue reading here in the Guardian

Soaring US deficit is a source of concern

When our grandchildren study economics one day, will they systematically have to add a dummy variable* to their econometric equations for the period covering the Trump administration? Will the US economy over this period have something of a “special status” due to Trump’s and Congress’ decisions? This question is worth raising in light of moves to cut taxes and raise spending, with the ensuing effects on the appalling US public deficit.

The state of public finances is the trickiest of questions. The sustainable rise in the public deficit seems to show that the economy is undergoing a severe recession, yet this is far from true as Janet Yellen took the economy to full employment (see analysis from Jason Furman). So economic stimulus moves from the White House and Congress raise very real questions on the rationale behind this policy. Governments do not embark on economic stimulus programs when the country is running on full employment, otherwise major long term imbalances are created, which are bad news for all concerned. Continue reading