The Achilles’ heel of Trump’s eco­nom­ics

China Daily (USA) - - VIEWS -

US pres­i­dent-elect Don­ald Trump’s eco­nomic strat­egy is se­verely flawed. He wants to re­store growth via deficit spend­ing in a coun­try with a chronic short­fall in sav­ings, which points to a fur­ther com­pres­sion in na­tional sav­ings, mak­ing a widen­ing of an al­ready out­size trade gap all but in­evitable.

That dy­namic un­masks the Achilles’ heel of Trump’s eco­nom­ics, or “Trumpo­nomics”: a bla­tant pro­tec­tion­ist bias that col­lides head-on with theUnited States’ in­escapable reliance on for­eign sav­ings and trade deficits to sus­tain eco­nomic growth.

The in­com­ing Trump ad­min­is­tra­tion will not in­herit a strong and sound US econ­omy. The pace of re­cov­ery since the global fi­nan­cial cri­sis has been run­ning at half that of nor­mal cycli­cal re­bounds— all the more dis­turb­ing given the mas­sive size of the con­trac­tion in 2008-09. And sav­ings, the seed of fu­ture pros­per­ity, re­main in woe­fully short sup­ply. The so-called net na­tional sav­ings rate— the de­pre­ci­a­tion­ad­justed sum of busi­ness, house­hold and gov­ern­ment sav­ings— stood at just 2.4 per­cent of na­tional in­come in mid-2016. While that’s an im­prove­ment from the un­prece­dented neg­a­tive sav­ings po­si­tion in 2008-11, it re­mains far short of the 6.3 per­cent av­er­age that pre­vailed over the fi­nal three decades of the 20th cen­tury.

Lack­ing in sav­ings and want­ing to grow, theUS must im­port sur­plus sav­ings from abroad. And the only way to at­tract that for­eign cap­i­tal is by run­ning mas­sive cur­rent-ac­count and trade deficits. The num­bers bear this out: since 2000, when na­tional sav­ings fell well be­low trend, the cur­rent-ac­count deficit has widened to an av­er­age of 3.8 per­cent of GDP— nearly four times the 1 per­cent gap from 1970 to 1999. Sim­i­larly, the net ex­port deficit— the broad­est mea­sure of a coun­try’s trade im­bal­ance— has been 4 per­cent of GDP since 2000, ver­sus an av­er­age of 1.1 per­cent over the fi­nal three decades of the 20th cen­tury.

“Trumpo­nomics” fix­ates on coun­try-spe­cific sources of the trade deficit, such as China and Mex­ico, but misses the fun­da­men­tal point that these bi­lat­eral deficits are symp­toms of theUS’ far deeper sav­ings prob­lem. Pre­sume for the mo­ment that theUS closes down trade with China and Mex­ico— the largest and fourth­largest com­po­nents of the over­all trade deficit— through a com­bi­na­tion of tar­iffs and other pro­tec­tion­ist mea­sures. With­out ad­dress­ing theUS’ chronic sav­ings short­age, the Chi­nese and Mex­i­can com­po­nents of the trade deficit would sim­ply be re­dis­tributed to other coun­tries— most likely to higher-cost pro­duc­ers. The re­sult would be the func­tional equiv­a­lent of a tax hike on be­lea­guered mid­dle-classUS fam­i­lies.

In short, there is no bi­lat­eral fix for a mul­ti­lat­eral prob­lem.

“Trumpo­nomics” seems likely to ex­ac­er­bate the US’ sav­ings short­fall. Analy­ses by the Tax Pol­icy Cen­ter, the Tax Foun­da­tion andMoody’s An­a­lyt­ics all in­di­cate that fed­eral bud­get deficits un­der Trump’s eco­nomic plan are headed back to­ward at least 7 per­cent of GDP over the next 10 years.

Therein lies one of the most glar­ing dis­con­nects of “Trumpo­nomics”. Get­ting tough on trade at a time when na­tional sav­ings is about to come un­der ever-greater pres­sure sim­ply doesn’t add up. Even the most con­ser­va­tive es­ti­mates of the fed­eral bud­get deficit sug­gest that the al­ready-de­pressed net na­tional sav­ings rate could re-en­ter neg­a­tive ter­ri­tory at some point in the 2018-19 pe­riod. That would put re­newed pres­sure on the cur­rent-ac­count and trade deficits, mak­ing it ex­tremely dif­fi­cult to re­verse the loss of jobs and in­come that politi­cians are quick to blame on theUS’ trad­ing part­ners.

Iron­i­cally, in the com­ing era of neg­a­tive sav­ings, the US will find it­self in­creas­ingly de­pen­dent on sur­plus sav­ings from abroad. If the Trump ad­min­is­tra­tion takes aim at ma­jor for­eign lenders — namely, China — its strat­egy could quickly back­fire. At a min­i­mum, there could be an ad­verse im­pact on the terms by which the US bor­rows from abroad; that could mean higher in­ter­est rates — hints of which are al­ready ev­i­dent — and ul­ti­mately down­ward pres­sure on the US dol­lar. And, of course, there is the worst-case sce­nario of an es­ca­lat­ing global trade war.

Pro­tec­tion­ism, ane­mic sav­ings, and deficit spend­ing make for an es­pe­cially toxic cock­tail. Un­der “Trumpo­nomics”, it will be ex­ceed­ingly dif­fi­cult to make the US great again. The author, a fac­ulty mem­ber at Yale Univer­sity and for­mer chair­man ofMor­gan Stan­ley Asia, is the author of Un­bal­anced: The Code­pen­dency of Amer­ica and China. Project Syndicate

Start­ing with its kids. For ex­am­ple, one of China’s goals is to pre­pare a reser­voir of 50,000 soc­cer coaches in schools and set up 15,000 soc­cer schools na­tion­wide by 2020.

Ger­many has helped China achieve its eco­nomic take­off by in­vest­ing, trad­ing and ex­port­ing its high-tech knowhow for years. Hav­ing won the­World Cup four times, Ger­many is also a nat­u­ral part­ner to help China achieve its soc­cer am­bi­tions.

Ger­many is likely to get the op­por­tu­nity to train Chi­nese school coaches or even send their own coaches to some of China’s schools.

Of course, China’s lead­ers be­lieve the pro­mo­tion of soc­cer goes far be­yond the goals re­lated to the­World Cup. And soc­cer co­op­er­a­tion be­tween China and Ger­many can pro­duce other op­por­tu­ni­ties for them to tap.

China boasts 500 mil­lion soc­cer fans and many sup­port Ger­man teams. A long chain of busi­ness op­por­tu­ni­ties of­fer­ing fun and en­joy­ment for the fans are wait­ing for China and Ger­many to ex­plore.

On the hard­ware side, China plans to con­struct 70,000 soc­cer pitches by 2020. In ad­di­tion, it is also ready to al­low pri­vate and for­eign in­vestors to get in­volved in soc­cer de­vel­op­ment funds. Ger­mans could also ex­plore the busi­ness op­por­tu­ni­ties in help­ing China re­al­ize these aims.

Nowa­days, the ma­jor­ity of Chi­nese peo­ple are seek­ing to im­prove their qual­ity of life and are will­ing to in­vest time and en­ergy in leisure and sports. And par­ents are en­cour­ag­ing their kids to fol­low sports or play them. So China and Ger­many could even ex­change ideas about how to im­prove qual­ity of life through the pro­mo­tion of sports.

While en­ter­ing into the agree­ment, Merkel jok­ingly ex­pressed worry that Ger­many was help­ing to cul­ti­vate a com­peti­tor in the soc­cer world.

But Ger­many should not worry. There are many ad­van­tages for the coun­try. Ba­si­cally, there are no global or EU reg­u­la­tions that re­strict Ger­many from ex­port­ing soc­cer coaches, ex­pe­ri­ence, and man­age­ment pro­fes­sion­als to China. How­ever, Ger­many will have to com­pete with other coun­tries. Within Europe, Italy, France, the UK, Spain, Por­tu­gal, and even Poland and the Czech Re­pub­lic can com­pete with Ger­many for soc­cer op­por­tu­ni­ties with China. And other ri­vals ex­ist in Africa, South Amer­ica, and Asia.

Such com­pe­ti­tion is valu­able as na­tions work with China as it strives to at­tain its soc­cer goals.

CAI MENG / CHINA DAILY

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