This post is available in pdf format My Wedenesday Column – November 7
US job growth is buoyant, but is it all down to the Trump effect?
The US economy created 250,000 jobs in October, which is a bit higher than the average of 213,000 witnessed since the start of the year. However, October is usually a fairly good month for new job creation, with 271,000 in October 2017, and an average of 246,000 in the month of October since 2013 as compared to an average of 206,000 for other months.
The labor market is buoyant overall, reflecting a solid pace of economic growth although nothing to write home about with 2.25% per year on average since 2011. Continue reading
World trade figures issued by the Dutch institute CPB have been published for the month of August.
Year-on-year, the improvement observed that has started in June has been extended to August with an increase of 3.8%. This figure is still limited as before the 2008 crisis, average trade growth was 7% per year.
On the graph, however, there is a marked divergence between the pace of trade and the export order indices of the US, Japan and the Euro zone. Usually these two indicators have consistent profiles. World trade is up while the average of these 3 Markit indices continues to deteriorate. We already noted this point a month ago but it is confirmed clearly.
These two graphs this morning in the “Daily Shot” of the Wall Street Journal show the lower world trade momentum. All the indicators converge to a lower dynamics. With US tariffs and retaliation the risk is an extended downward trend.
The virtuous loop seen in 2017 between trade and activity had an impulse coming from very accommodative monetary policies all around the world. There is no new central bankers’ impulse. It is even the contrary. Investors now expect that the next trend will be on the tighter side after the Fed.
Moreover the uncertainty associated with the lower global economic mood (from non cooperative strategies from the US, UK, Italy and retaliation measures) reduces the economic horizon and therefore the will to invest from corporate companies.
In other words, after a surge in 2017 coming from central banks’ impulse, there is a downside adjustment which is amplified by non cooperative behavior from many governments.
The main risk at the global level is a rapid growth slowdown. It could be sooner than later.
The US imposed steel (25%) and aluminum (10%) duties on Europe, Canada and Mexico on May 31, reflecting Trump’s obsession to bring business back to the US and contain the country’s external deficit. He had already presented this idea right from his inaugural address (in French) at the White House, with his view of the world economy as a zero-sum game, meaning each country has to fight tooth-and-nail to get its hands on the biggest slice of the pie. This view is admittedly not helpful in understanding economic and growth momentum, but it is the view we are dealing with here.
Based on steel and aluminum exports to the US, the cost for Canada is very high at around 2 billion, as well as for Mexico (600 million) and the European Union at around 1.7 billion, including close to 400 million for Germany and 150 million for France. These are substantial figures, so they can have an impact on trade with the US.
So in the end, who will come out the winner from this tariff jostling? It is probably a no-win situation. A trade war is a bit like going 15 rounds in heavyweight boxing match…the two fighters make it through, but they are both a mess by the end and run the serious risk of some long-lasting after-effects.
We can raise a number of points:
1 – Announcements made at the start of March and on Thursday May 31 pushed steel prices up, as shown very clearly by the chart below. Continue reading
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
Growth has made a comeback but each country already wants to take its own path. Unity is no longer on the cards and the world economy is fast going down a very different road.
During the recovery in 2016 and 2017, the worldwide situation was relatively stable, with no major imbalances, and the central banks cut some slack when required to make it through any bumpy patches. This approach worked fairly well as the pace across the various areas of the world became more uniform, driving growth and trade momentum, and economists were constantly forced to upgrade their forecasts.
But those days are gone, and this cooperative and coordinated dimension has disappeared. Continue reading