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President Trump’s tariffs and duties and the transformation of the world economy

Giancarlo Elia Valori

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The 45thPresident of the United States, Donald J. Trump, keeps on repeating he wants to make America “great again”.

Hence, first and foremost, he wants to reindustrialize his country which, in fact, is currently the world champion in  the loss of productive, manufacturing or industrial companies.

The birth of a country that now consumes without producing much, namely the USA, materialized initially under Reagan’s Presidency, but continued rapidly with the successive Presidents.

For example, at the end of the 1960s, the US industrial labour force was at least 35% of the total number of people employed, while currently this labour force is only 20%.

Since 2001 over 70,500 companies with more than 500 employees have been closed down definitively.

The Gospel of Matthew (4:1-11) perfectly clarifies the situation of the post-productive post-economy – if we can use this expression.

Jesus Christ, who was hungry after having fasted forty days and forty nights in the desert, was tempted by the devil who told him: “If you are the Son of God, command these stones to become loaves of bread”.

Jesus answered to the devil: “Man shall not live by bread only, but by every word that comes from the mouth of God”.

Hence Jesus – as a great economist – explains to the devil that we must not change the Creation and replace God, but  instead follow Smith’s liberal and socialist labour theory of value.

Without the processing and transformation of materials – according to their laws – there is no value and therefore not even price.

Only manual or intellectual work, in fact, does transform materials, but never creates and hence does not even destroy them.

Hence we should produce only those goods and services that the market really asks for, without useless miracles, which are already incorporated in the Being as it is.

But let us revert to the economy of the powerful and stable North American de-industrialization process.

However, some sectors of US companies are still active, such as semiconductors and electronics, while clothing, for example, has fallen by 60% despite the US population has almost doubled since 1950.

When this happens, high value-added work increases, while all productive activities having a low incidence of unit value have definitively been delocalized outside the  USA (and the EU – although in this case, the debate has a political, military and strategic nature).

It is worth recalling that immediately before the first subprime crisis of 2016, the US industrial production had fallen by 15% – and this was certainly not by mere coincidence.

Later it started to grow again by approximately 4% – with many sectoral differences -in the years in which the United States managed to move their financial crisis elsewhere.

But let us revert to the factories that the US President deems necessary to make America great again, and to the specific policy of import and export duties imposed by President Trump in record time.

In fact, on March 1, 2018, the President announced it would imposed a 25% customs duty on steel imports from China and a 10% additional one on aluminium imports from China.

This, however, increases the production costs of the aforementioned US sectors that still handle and stand up to global competition, which obviously recoup the money lost from end customers, by increasing prices.

If – like the USA, but perhaps not for much longer – a country still lives on electronic manufacturing and components, the increase in the factory unit prices leads to an increase in the final price and, hence, restricts domestic or foreign markets.

Any price increase, albeit small, leads to a decrease in the buyers of those goods. Pareto taught this to us ad nauseam.

But clearly it was not enough.

Later, on April 3, President Trump announced he would  impose further 25% duties on additional 50 billion Chinese imports of electronics and aerospace products, as well as  machine tools.

This means that – paradoxically, but not too much –  President Trump wants to slow down precisely the  productive sectors that China deems strategic for the future, as shown in its Plan for 2025.

In 2017 China produced a total of 23.12 trillion US dollars, calculated on the basis of power purchasing parity (p.p.p.).

Currently the EU only ranks second, with 19.9 trillion US dollars, again calculated as p.p.p. In 2016 it was the world’s top  producer.

The United States only ranks third, with a yearly product of only 19.3 trillion dollars.

Financial stones cannot be turned into loaves of bread.

In spite of everything, China has a yearly per capita income of 16,600 US dollars, while the US yearly per capita GDP is equal to 59,500 US dollars.

Scarce domestic consumption, all focused on exports, is the Chinese model that has developed since Deng Xiaoping’s “Four Modernizations”, which survives only in an area in which all macroeconomic variables are not left to some “market” invisible hands, but to a central authority.

However, this is exactly the reason why China is the largest world exporter.

Hence it rules end markets.

In 2017, it shipped abroad 2.2 trillion US $ worth of goods and services.

Currently 18% of Chinese products are exported to the United States.

This much contributes to the US trade deficit, which currently amounts to 375 billion US dollars.

China is also the second largest importer in the world, to the tune of 1.7 trillion dollars in 2017.

The mechanisms of interaction between China and the United States, however, are even more complex than we could guess from these scarce data and statistics.

It is not by mere coincidence that China is still the largest holder of US public debt.

In January 2018, China held 1.2 trillion in US government debt securities, i.e. 19% of the US public debt held by foreign investors.

A very powerful monetary, political, strategic and even military leverage.

Obviously China buys US securities to back the value of the dollar, to which the yuan is pegged.

However, it devalues its currency (and hence the US dollar) when Chinese prices need to be kept competitive.

Therefore, while the United States wants to increase the yuan value, with a view to favouring its exports, China threatens to sell its US public debt securities immediately.

The dollar increased by 25% between 2016 and 2016, but since 2005China has devalued the yuan.

A very clear example of aggressive monetary pegging.

Moreover, the issue of China’s unfair commercial behaviour is now long-standing and it was also raised by many candidates to the US presidential elections.

In fact the success of Paulson, the former US Treasury Secretary, was to reduce the American trade deficit with China and to later ask for opening to foreign investment in key sectors of the Chinese economy.

For example in the banking sector, thus putting an end – in some cases – to the Chinese practice of export subsidies and administered and capped prices.

Just deal with realism and intelligence and Chinese Confucianism can find solutions to everything.

The other side of the Chinese miracle, however, is the very high debt of companies and households, which is obviously  still connected to the balance between the yuan and the US dollar.

In this case, however, the programmed slowdown of the Chinese GDP growth and the limits on strong currency exports, as well as the control of wages and profits are enough.

But let us revert to President Trump’s tariffs and duties.

In fact the US President has imposed these new tariffs and duties on Chinese imports to force China to remove the  foreign investors’ obligation to transfer technology and patents to their Chinese partners.

Nevertheless China trades many productsit could also manufacture on its own just because it wants to fully open Western intellectual property rights for its companies.

A few hours later, however,  China responded to President Trump with a 25% increase in duties on 50 billion dollars of US exports to China.

On April 6, President Trump further reacted by stating he would call for the imposition of other duties on additional  100 billion dollars of imports from China.

It is worth noting, however, that this accounts for only  a third of total US imports from China, which is considering the possibility of responding harshly to President Trump by steadily increasing tariffs and duties for all US products entering Chinese markets.

Besides the issue of relations with China, however, the other side of the US tariff and duty issue is the NAFTA  renegotiation, officially requested by President Trump on August 16, 2017.

It should be recalled that the North American Free Trade Agreement is the largest commercial agreement currently operating in the world, signed by Canada, USA and Mexico.

Firstly, President Trump wants Mexico to cut – almost entirely – VAT on imports from the USA and put an end to the programme of maquiladoras, i.e. the factories owned by foreign investors in Mexico, in which the components temporarily imported into that country under a duty-free scheme are assembled or processed.

The maquiladoras programme started in 1965 to reduce the huge unemployment in the North Mexican regions, but currently there are at least 2,900 such factories between Mexico and the USA producing 55% of total Mexican export goods.

They mainly manufacture cars and consumer electronics, which are exactly the sectors that – as already seen – President Trump  wants to revitalize.

Obviously the current US Presidency wants to dismantle the maquiladoras on its Mexican border, where 90% of such companies are located.

Thanks to these special factories, Mexico competes directly with US workers, considering that the local Central American workforce is much cheaper.

Thanks to this mechanism of cross-border production outsourcing – between 1994 and 2010 alone – 682,900 US jobs moved to Mexico, with 80% of US jobs lost in the manufacturing sector.

Moreover, again due to NAFTA, as many as 1.3 million jobs in Mexican agriculture were lost.

In fact, following the removal of duties between the USA and Mexico, the latter was flooded with US produce below cost and subsidized by the State.

All this happened while the Central American administration cut agricultural subsidies – which will soon happen also in the crazy EU – and focused the little State aid left for agriculture to the big haciendas, thus destroying and ruining small farmers.

Liberal and free-trade masochism.

NAFTA, however, also has many advantages for the United States.

Without the tripartite inter-American agreement, North American food prices would be significantly higher, while also oil and gas from Mexico and Canada would be much more expensive for US consumers.

As Carl Schmitt taught us, the American Monroe Doctrine (epitomized by the slogan “America to the Americans”) was developed above all against Europe. Nevertheless, the agreements like NAFTA allow to share – at least partially – the benefits of increased trade between the USA, Canada and Mexico in a less asymmetric way than usual.

The US primacy theorized by Monroe in 1823 and later rearticulated by Roosevelt in his State of the Union address in 1904, with the Roosevelt Corollary whereby  “chronic wrongdoing may in America, as elsewhere, ultimately require intervention by some civilized nation and force the United States, although reluctantly, in flagrant cases of such wrongdoing, to the exercise of an international police  power”, holds true also at economic level.

But are we currently sure that the most civilized nation is still the Northern one?

Just to better understand what we are talking about, it should be noted that the NAFTA agreement is made up of 2,000 pages, with eight sections and 22 chapters.

As such, it is currently worth 0.5% of the US GDP.

Since the official implementation of this agreement in the three countries which have adopted it, North American exports have created as many as 5 million jobs, with the creation of 800,000 additional jobs in the USA alone.

Nevertheless approximately 750,000 other jobs have also been lost in the United States alone, mainly due to the transfer of US activities to Mexican maquiladoras.

Hence a slight surplus.

Moreover, NAFTA has anyway ensured the status of “most favoured nation” to Canada and Mexico and has removed all tariffs and duties for the goods produced in one of the three Member States. It has finally established certain and clear procedures for settling trade disputes between the companies of every country belonging to it.

But above all NAFTA enables the United States to better compete with EU and Chinese products, by reducing the prices of the NAFTA goods wherever they are produced.

Also in this case, however, President Trump has threatened to walk out of the inter-American trade treaty and impose a 35% duty on imported Mexican products.

The aim is obviously to bring back investment in the maquiladoras to the United States.

Is this useful, also with regard to an evident trade war with the EU, Japan and China, as usual?

Is there currently sufficient real liquidity in the United States to back the supply increase which is thus created, with the return of all these productions back home?

Or is the idea prevailing of having everything be bought on credit, with all the consequences we can easily imagine?

Or is it possibly a matter of sending the NAFTA productive surplus back to European, Chinese and Asian markets?

Moreover, with specific reference to another multilateral trade agreement, the Trans-Pacific Partnership (TPP), President Trump announced he would like to establish a series of new bilateral trade relations that the US President likes more than the multilateral ones.

It is worth recalling that the TPP applies to the USA and to other 11 countries around the Pacific Ocean, namely Australia, Brunei, Canada, Chile, Malaysia, Japan, Mexico, New Zealand, Peru, Singapore and finally Vietnam.

All these countries together account for 40% of the total global GDP, which is currently equal to 107.45 trillion US dollars annually. They are also worth over 26% of world trade per year and as many as 793 million global consumers.

Obviously the list does not include China and India, considering that the TPP architecture has been designed to surround, close or at least limit the growth of the two great Asian countries.

President Trump also wants to renegotiate the TPP, which  by2025 is expected to increase trade among all Members States to the tune of 305 billion us dollars per year.

Hence if President Trump walks out of the TPP, many Member States will look to China for replacing the USA – and, indeed, many of them are already doing so.

Therefore the US President’s idea is to make the United States grow – through this wave of various forms of protectionism – by at least 6% a year, with an expected 3% net tax increase.

Too much. It would inevitably lead to high inflation and the classic boom-bust cycle.

If the economy grows by 2-3% a year, the cycle can expand almost indefinitely.

Conversely, if there is too much money looking for too few goods to buy, inflation will always come and the booming phase will stop all of a sudden.

Hence the bust materializes, with the quick reduction of wages and credits, as well as with an increase in prices and interest rates.

Therefore President Trump’s very dangerous idea is that –  in such a monetary and economic context -the United States can keep on borrowing all the liquidity needed because, as he said recently, “we never default, because we can print our currency”.

This is true. But if too many green bucks are printed, interest rates will rise immediately and this new version of Reagan-style supply-side economics will be stopped.

Finally a very serious recession would materialize, which currently would not be so easy to export to “friendly” countries.

Recently the dollar area has much shrunk.

It is no longer true –  as the former US Treasury Secretary John Connally once told to his European colleagues – that “the dollar is our currency, but it is your problem”.

So far, however, President Trump has decided 29 commercial or financial deregulation operations and over 100 internal guidelines and directives to the Administration, as well as other 50 new global market rules discussed by the Congress.

On February 3, 2017, the US President also decided to reform and almost repeal the rationale of the Dodd-Frank Wall Street Reform Act, with rules and regulations further reducing checks and audits on banks, which are no longer obliged to send to the Treasury Ministry data and information about the loans granted.

Moreover the banks with clients’ deposits lower than 10 billion US dollars must not even abide by the Volcker Rule, which forbids banks to use clients deposits to make profit.

Therefore, since 2015, banks cannot hold hedge funds and private equity funds.

Nowadays, however, with the reform of the Dodd-Frank Act, many credit institutions can avoid these difficulties and restrictions and play roulette with clients’ deposits.

For the new US lawmaker, Volcker’s and Greenspan’s policy was a way to avoid the implosion of the US financial system, after the fatal end of the Glass-Steagall Act which had been lasting since 1933.

It is worth recalling that the Glass-Steagall Act had come into force when the Roosevelt’s Presidency decided to imitate the Fascist legislation of the new separation between deposit banks and merchant or investment banks.

Banks did not want the Glass-Steagall Act because they wanted to be “internationally competitive”.

They also wanted to create money at will, regardless of the relationship between investment and collection.

What happened is before us to be seen.

President Trump wants to abolish even the Departments of Education and Environmental Protection, with an increase in military spending that is supposed to lead to a total public deficit of 577 billion US dollars.

Hence, in this new context, can the US Presidency avoid the Chinese commercial pressure and also ensure that the jobs repatriated to the USA from NAFTA, from negotiations with Japan, from the TPP and the rest of the multipolar trade system are such as to back the dollar without creating excessive inflation?

Moreover, all international trade experts agree that it is not the simple and traditional tariff barriers – but rather the non-tariff ones, which are very fashionable today – to cause real problems.

In short, we need to consider trade policy together with  strategy: if US protectionism increases, the growth of peripheral economies will decrease.

Thust here will be increasing possibilities of crisis in developing countries, while China’s desire to replace the USA in multilateral economic mechanisms that directly affect it may increase enormously.

Also the desire of global US competitors, such as the EU, to replace US exports at unchanged rates – at least for a short lapse of time – may increase.

There is no need for dumping – non-tariff transactions and the quality standard of made-in-Europe products are enough.

Therefore, nowadays, nothing is certain.

Certainly not US protectionism, of which we have noted  the dangers for North America and also for its geo-economic partners. Not even universal free trade, which does not consider the political evaluations and the economic, monetary and military planning of the various world commercial areas, is feasible and practicable.

Indeed, as in military policy, a great agreement – as the initial GATT was – is required in the current world market, with a view to establishing – for at least ten years – the areas and spheres of economic and productive influence and their possible future changes.

There is no free trade without planning.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Remembering JFK – The Short Lived President: His Life and Achievements

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John Fitzgerald Kennedy (JFK) was the 35th President of the United States of America (USA) during the heightened time of the Cold War. “The youngest man ever elected to the presidency, succeeding the man who… was the oldest. He symbolized anew generation, a coming-of-age. The first president born in the 20th century, the first young veteran of World War II to reach the White House.”

A number of events of international significance took place during his presidency, including the Cuban Missile crisis, Bay of Pigs invasion and the initiation of US involvement in Vietnam. He is remembered for carefully handling crisis over Cuba when ‘the world was brinks away from nuclear war.’ with Union of Soviet Socialist Republic (USSR) when the latter deployed missiles on the island. ‘Containment‘ continued to be the official policy; however the Kennedy administration undertook a modest approach, moving from his predecessors ‘Massive Retaliation’ to a more ‘Flexible Response.’ Having served overseas as a navy man provided him the necessary exposure and knowledge, with which he was able to negotiate well with competitors and adversaries alike on a number of occasions. It was this background that allowed him to bring reforms at local domestic arena, particularly at the societal level and in the armed forces. A number of legislation pertaining to Civil Rights Movement were enacted during his tenure. He is credited with the creation of US Navy Seals and Special Services Group (SSG) which form the backbone of the country’s military. It was his vision and plan that later allowed Neil Armstrong of the Apollo 11 to be the first man on moon. Kennedy served a period of three years in the White House, which were cut short by his assassination in 1963. Robert Dallek has titled his award winning biography ‘An Unfinished Life’ calling the president a great statesman who achieved so much in such a short span of time.

Early Life and Career

JFK was born to an influential Irish immigrant family who were big names in business and politics. His grandfathers were seasoned politician, one of whom, John F. Fitzgerald ascended as the Mayor of Boston. Joseph P. Kennedy, his father was the Ambassador to England. His upbringing greatly influenced him, according to his colleagues from an early age he was more interested in current affairs than his studies. His college professors greatly resented this as he seldom read the course assigned text books and was mostly seen with books on leadership and international affairs. He greatly admired Winston Churchill from a tender, whose book ‘Marlborough: His Life and Times’ remained his all-time favourite.

Kennedy was not always the charismatic and leading figure during his early career. According to biographer, Robert Dallek, he was a substantiated figure in the household being overshadowed by the personality of his elder brother, Joe Jr. He greatly resented that he always had to live up to mark set by him. This was shown by his anger and rebellious due to which he was chastened a number of time during his years at Choate College. It was only after tragic accident of Joe Jr. while serving overseas in the Second World War, did Jack Kennedy came into the spotlight. Dallek argues that it was in fact Joe Jr. whom their father wanted to be the President, only when he was no more did Kennedy being next in line, ascended to the office.

Kennedy leadership skills were recognized from his early youth days. He was nominated the business manager of his school yearbook. During a college voting, he was voted by his peers as “most likely to succeed” in whatever future career he undertook.  His skills were further sharpened after his graduation from Harvard and Princeton.

“The reasons that I have for wishing to go to Harvard are several. I feel that Harvard can give me a better background and a better liberal education than any other university. I have always wanted to go there, as I have felt that it is not just another college, but is a university with something definite to offer….. I would like to go to the same college as my father. To be a ‘Harvard man’ is an enviable distinction, and one that I sincerely hope I shall attain.

Kennedy during his academic career was a popular figure. He was likewise good in sports, joining the college football, golf, and swimming, for which he won 1936 Nantucket Sound Star Championship Cup. However his family greatly hid all the health problems, Jack faced from his early to his times at the White House. He had to undergo emergency hospitalization a number of times. However to this day it remains a mystery as to which disease he actually had. 

In the days preceding the Second World War, Kennedy toured Europe, Soviet Union, the Balkans, and the Middle East in preparation for his Harvard thesis. He returned to London from Czechoslovakia, on the very day when Germany invaded Poland which culminated World War II. His thesis, “Appeasement in Munich”, became a bestseller under the title Why England Slept. Kennedy’s far sightedness can be seen by his writing which proposed for an Anglo-American alliance believing only it could save the day.

Kennedy Doctrine

President J.F Kennedy is remembered for orchestrating a political ideology and belief that the pundits dubbed as the “Kennedy Doctrine”.  It is attributed to the year 1961, in a speech that summed up the administration beliefs and course of action during the heightened time of the Cold War.

“Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.”

The Kennedy Doctrine was an expansion from the foreign policy initiatives of his predecessors. His predecessors “Eisenhower Doctrine” was focused more towards Middle East whereas the “Truman Doctrine” consisted of containing Soviet influence in Europe. JFK being the ‘far-sighted’ politician extended similar objectives to area of Latin America following the left-wing aspirations following Fidel Castro’s revolution. He was involved and well committed when it came to foreign policy initiatives on a number of occasions, particularly after the failed Bay of Pigs invasion for which the President blasted the then Joint Chief of Staff for providing him with ‘an unworkable plan.’ W. Averell Harriman, served in various administrations was considered one of the foreign policy elders as ‘Wise Men’, called him:“The first President, that I know of who was really his own secretary of state. He dealt with every aspect of foreign policy, and he knew about everything that was going on.”

Cuban Missile Crisis

The Cuban Missile Crisis reflected the pragmatic leadership style of President Kennedy. It was what experts termed as ‘Flexible Response.” One of the great qualities of JFK, who to this date remains the only President of UShaving a catholic faith, knew how to challenge the advice and assumption of the experts. This was exactly the case during the Cuban Missile crisis, where he diligently listened to all the three groups present at the high level meeting. There were the hawks being represented by the defence establishment, then there were the moderates consisting of Robert McNamara and Attorney General Robert Kennedy and finally there were the doves who believed that US should present a stance that is least hostile, consisting of direct cooperation with Soviets. Kennedy personally micromanaged the quarantine by personally selecting the US Navy warships for that very purpose.  Peter G. Northhouse has called this an ‘authoritarian style blended with charismatic leadership.’ He attributes this characteristic to his training as a navy man and to his times during Harvard and Stanford. It is believed that it was Kennedy who got most out of the Cuban Missile crisis, his popularity rating increased from 66 percent to 77 percent, one of the highest ever by a President serving in the office. Whereas Soviet Premier Khrushchev was a bit unfortunate in this case, as it was instrumental in bringing a coup against him which led to his ouster.   

Legacy

Kennedy was the first of the six presidents to have served in the U.S. Navy to this day. One of the enduring legacies remains the creation of Special Forces command, the Navy SEALs, which to this remains the highest and most prestigious in International Defence Forces. The Civil Rights Bill was his proposal, which unfortunately became only after his assassination, in the year 1964.

Some historians blame him for the continuing the policies of his predecessors, Truman and Eisenhower which eventually got the US into Vietnam, a long and unpopular war. Some conspiracy theorists argue that it was because he challenged the military industrial complex decision to end the War in Vietnam, did he got assassinated. They cite his 1963 speech at American University where he signaled that he was ready ‘to bring back all the 1000 troops back home’President Kennedy to this day remains the most popular US President of all times, in the league reserved for big names like George Washington, Abraham Lincoln and Franklin Roosevelt.

“Visitors from all over the world have signed their names in the memory books, and many have written tributes: “Our greatest President.” “Oh how we miss him!” “The greatest man since Jesus Christ.”

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Presidential elections – 2020, or does Trump have “federal reserve”?

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On July 31, the US Federal Reserve’s Open Market Committee cut interest rates – the first such move in 11 years. During the past 18 months, President Donald Trump has regularly criticized the country’s central bank for refusing to lower interest rates, calling the Fed’s policy the main reason for America’s current economic slowdown. Trump’s critics, in their turn, accuse him of trying to manipulate the Federal Reserve’s policy in a bid to secure the best conditions for his re-election 2020 re-election campaign. How can the state of the country’s economy and finances influence the choice the American voters will make next year?

The Federal Reserve’s current head, Jerome Powell, a lawyer who has been in the investment business for many years, is the Fed’s first chairperson since the 1970s, who has no professional economic education. Small wonder that he was initially viewed by many as Trump’s political appointee. Still, until this very summer, Powell kept raising interest rates instead of lowering them, as Trump demanded, thus staying the course charted by his predecessor, Janet Yellen, whom Trump strongly criticized during his election campaign. Now that the Fed has cut interest rates, however, Donald Trump is still not happy. In a recent tweet, he said that what markets really expected from the Federal Reserve was not just to cut rates, but to send a clear signal about the start of a long period of “aggressive” easing of US monetary policy primarily aimed at counteracting similar measures by “China, the European Union and other countries of the world.”

“As usual, Powell let us down,” Trump summed up.

As a businessman, Donald Trump may feel the volatility of the US economy, and be fully aware of the academic studies of the past decades, above all about the state of the national economy and the year-to-year economic indicators, which significantly affect the voters’ political preferences, including for someone, who they want to see in the White House. We are not even talking about a full-blown recession – just an economic slowdown three or six months before Election Day. The proponents of this point of view believe that, according to all objective indicators, the decline in economic growth that happened in 2016 should have become “barely noticeable for most Americans.” Still, it was noticeable enough to increase Trump’s electoral base. The very same thing could happen in 2020, since the currently high GDP growth rate may prove “unbearable” for the economy next year. Just as it happened in 2016, when the economy stopped growing by more than half compared to the very robust 2015. Right now, it is still premature to say if the US economy has reached its next peak, but many key indicators look very similar to how it was doing ahead of the 2016 presidential election. Trump’s critics could interpret the Federal Reserve’s current rate cut as an attempt to prevent a similar development and increase the incumbent’s chances for re-election.

Meanwhile, the interest rate cut could have a detrimental effect on the labor market. Even though the US economy is going strong, in a market economy you cannot keep reducing unemployment all the time. Besides, the rate of this reduction has consistently been slowing down since Donald Trump’s election. Moreover, most American economists believe that unemployment within 4 to 5 percent is “optimal” for maintaining economic growth rates. This is the de-facto “target” indicator the Fed has in mind. The modern economic theory maintains that when unemployment is too low, the central bank should raise the interest rate, not cut it. Now, however, the Fed says that it is more concerned about “stifled inflation.” This means that the US monetary authorities could now put any further decrease in unemployment to the back burner. A sharp drop in employment growth that happened a few months before the 2016 elections made many voters feel that the situation on the labor market was deteriorating. As a result, many of them turned their back on the party, whose leader was then at the White House. 

In November 2018, the US economy was going strong with the GDP growing above three percent, unemployment falling, and salaries going up. Still, the Democrats won the largest number of seats in the House of Representatives in midterm congressional elections since 1974.

Finding himself in a potentially “no-way-out” standoff with the now Democratic-controlled lower house of Congress, President Trump could theoretically use a tactic of compromises with the opposition Democrats  and even “restore shattered confidence” between the two parties. However, he opted for a confrontational scenario repeatedly trying to shift responsibility for failures in domestic politics and the sluggish pace of reindustrialization  to “obstructionist” Democrats, “opposition-minded” Silicon Valley companies, and, above all, to foul play by external forces. On August 1, the White House announced that the United States would impose an additional 10 percent tax on $300 billion of Chinese imports before the month was out. On August 5, the US Treasury officially designated China a “currency manipulator,” accusing Beijing of “undervaluing the yuan.” Trump believes that a continued easing of the US monetary policy will finally help clinch a truly “great deal” with China.

The Federal Reserve apparently thinks otherwise though. According to Powell, two of the three reasons for the rate cut have to do with the Trump administration’s trade policy, which has been disruptive for the world economy and caused “tensions in trade relations.” According to experts, the Federal Reserve is thus letting Trump know that he should reduce uncertainty and tension in international trade, namely to reconsider the policy of trade wars – something so many of his voters are so fond of. Many economists and business people in the United States agree with the Fed because the introduction of new duties on a long list of Chinese imports has resulted in higher retail prices, the loss of tens of thousands of jobs and has made many US industries less competitive in the world. US companies heavily dependent on the sale of their product in China have fallen victim to this conflict. The sense of uncertainty is also “working” against Trump who has locked horns with the Democrats, who now have a majority in the House of Representatives. Finally, China is already using retaliatory measures against companies located in the US states, which constitute Donald Trump’s electoral base. Trump’s actions may seriously undermine his chances of re-election in 2020.

The third reason for the rate cut is the Fed’s concern about the relatively low inflation. The nature of inflation is one of the biggest problems of economic theory because fears of rock-bottom inflation, fraught with deflation (a decrease in the general price level of goods and services due to excessively tight money supply) largely dictated the Federal Reserve’s monetary policy during the 1990s and early-2000s. This is what many experts see as one of the main causes of the 2008 financial crisis. On the one hand, with the interest rates now being where they are, it is premature to talk about the possibility of a new uncontrolled surge in borrowings, similar to the one that preceded the 2008 meltdown. On the other hand, some economists worry about the potential for growing risks in the US economy, if the Federal Reserve continues slashing interest rates. Critics of low rates have traditionally pointed to their direct relationship with the emergence of financial “bubbles” on the markets, which precipitated America’s slide into a recession in 2001 and 2007.

Finally, skeptics warn that official statistics about the state of the US economy make many people feel overly optimistic about the future. Meanwhile, indicators of leading companies’ performance show that their operating profits have stopped growing for quite some time now, and that their main income comes from exchange rate fluctuations and capitalization growth. Meanwhile, the US’ foreign debt keeps going up reaching a whopping $22 trillion, and the budget deficit is creeping up to $800 billion. This means that even the current GDP growth of almost 2.5 percent may not be enough to rectify the situation. “Under such circumstances, a single “spark” can send the fragile economic balance up in flames, and there is a sufficient number of such sparks around,” said Yelena Chizhevskaya, vice president of the RFI Bank for Mobile and Electronic Commerce.

From the domestic political point of view, if the Fed’s actions lead to a significant weakening of the dollar – and a number of experts are already talking about the start of the “bear cycle” of the US currency – this could result in a drop in incomes of US households in the walkup to the 2020 presidential elections.

Right now, America’s robust economic performance remains a major factor behind Donald Trump’s hopes for re-election in 2020. However, there are many signs of a possible decline, and a sharp one at that, in US economic growth rates “by the second half of 2020.” By the time the Americans go to the polls, their moods may be way less optimistic than they are today. Finally, President Trump, who pictures himself as the greatest “realist” of the modern West has been increasingly getting a taste for blackmailing and pressuring his opponents and nominal allies alike. Meanwhile, many economists now fear that the Trump administration’s “chaotic” and “provocative” actions may put the United States on a course to a new recession. If so, next year we may see unfolding a struggle for the post of the leader of one of the world’s greatest powers that could prove even more uncompromising than what we saw happening four years ago.

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The third Fox News shock to Trump

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New Fox News polls showed once again that US President Donald Trump is not doing well in state and state polls. Accordingly, the likelihood of Trump’s defeat in next year’s presidential election has increased dramatically. Unless the trend continues, Trump will no longer be at the forefront of US political and executive equations. Trump has twice accused the Fox News network of posting false and untrue polls. However, many US analysts believe that recent Fox News polls are based on current US facts. American citizens’ dissatisfaction with Trump’s foreign policy, as well as some economic discontent in some states, has contributed to Trump’s decline in popularity.

Although Trump has not yet responded to a Fox News poll, he is likely to accuse the US president of announcing false results in the near future! Donald Trump accuses not only Fox News but other media outlets and polls that predict his defeat in next year’s presidential election.

On the other hand, the competition between Joe Biden, Bernie Sanders, Elizabeth Warren, and Kamala Harris has intensified. If either of these candidates reach the final stage of next year’s presidential race, they will have a greater chance of defeating Trump. However, there is still much time left for the Democratic primary. The election will be held primarily in the crucial state of Iowa. If any Democrat candidate can win in this small and important state, he can also win other Democratic intra-party election contests. Here’s a look at some news and analysis on the U.S. presidential election:

Fox News poll shows Trump losing to Biden, Warren, Sanders and Harris

A Fox News poll released Thursday showed President Trump losing head-to-head matchups against four of the top Democratic presidential primary contenders. The poll found Trump with 39 percent support among registered voters in head-to-head matchups against Sens. Bernie Sanders (I-Vt.), Kamala Harris (D-Calif.), and Elizabeth Warren (D-Mass.). The poll found Sanders beating Trump with 48 percent, Warren winning over Trump with 45 percent and Harris winning with 46 percent support.

Former Vice President Joe Biden, meanwhile, beat Trump in the theoretical matchup with 50 percent support among those surveyed, compared to Trump’s 38 percent. Among Democratic primary contenders, Warren saw the largest gain in support in the poll — an 8 percent jump from last month’s survey. Warren, according to the poll, took second place behind Biden with the support of 20 percent of Democratic primary voters.

Sanders dropped to third, now at 10 percent in the poll and the only other candidate aside from Warren and Biden scoring double digit support among voters. Biden dropped slightly in the poll from a previous Fox News poll in July, from 33 percent to 31 percent, but remains the clear front-runner in the race according to the survey. The Fox News poll was taken between Aug. 11-13 and contacted 1,013 registered voters on landlines and cellphones. The margin of error is plus or minus 3 percent for all registered voters, and 4.5 percent for Democratic primary voters.

2 troubling signs for Trump in this new Fox News poll

As Washington Post reported, Trump fails to crack 40 percent in any matchup with a potential 2020 opponent in a new Fox News poll. And that may not be the worst of it for him.

The new Fox poll is arguably Trump’s worst of the early polls testing potential general-election matchups. He trails Joe Biden by 12 percentage points (50 percent to 38 percent), Sen. Bernie Sanders (Vt.) by nine points (48 to 39), Sen. Elizabeth Warren (Mass.) by seven (46 to 39) and Sen. Kamala D. Harris (Calif.) by six (45 to 39). That’s tied for his biggest deficit to date against Warren, according to RealClearPolitics, and it’s close to his biggest deficits against the others, too.

It’s just one poll of course, and even high-quality polls have margins of error. It’s possible Trump’s support percentage is really in the 40s, just like in most other polls. But if you drill down, there are a couple of other problematic pieces of this poll for Trump.

The first is his vote share versus his approval rating. There has been plenty of talk about Trump’s consistently low approval rating and how it sets him up for reelection. But in this poll, he doesn’t even completely lockdown that vote. While he gets 38 to 39 percent in all four matchups, his approval rating is actually 43 percent. That means roughly 4 percent of registered voters say they approve of Trump but they’re not ready to vote for him. And as Josh Jordan noted, this isn’t the first poll to show that. I looked back on three other high-quality national polls and found a drop-off in all three — albeit not as big as in Fox’s poll.

Reelection bids are generally viewed as referendums on the incumbent in which, in a close race, you’d expect the president to at least get the percentage of voters who approve of him. For Trump, it appears there is a small percentage of people who like the job he’s done but for whatever reason — concern about his tendency to fly off the handle, perhaps, or the fact that they also like the Democrats — aren’t yet on board with his reelection. It’s one thing to run for reelection with a low approval rating; it’s another to not even be able to count on that level of support.

An alternative reading, of course, is that these voters are ripe for Trump to bring back into the fold and increase his vote share as the race moves forward. But even then, he’s not in great shape.

The second problematic number comes from Fox News’s write-up of its poll:

Voters who have a negative view of both Biden and Trump back Biden by a 43-10 percent margin in the head-to-head matchup, although many would vote for someone else (27 percent), wouldn’t vote (12 percent) or are undecided (8 percent).

This is an admittedly small subsample, with a very large margin of error. Given Biden is relatively popular (50 percent favorable versus 42 percent unfavorable), the universe of voters who dislike both him and Trump is likely to be a very small share of the roughly 1,000 people surveyed. (I asked Fox about the sample size but haven’t heard back yet.)

But even accounting for that, this is ominous for Trump. That’s because these voters — those who disliked both him and Clinton — made the difference for him in 2016. As Philip Bump wrote last month:

Nationally, Trump had a 17-point edge with those voters, according to exit polls. In the three states that handed him the presidency — Michigan, Pennsylvania and Wisconsin — he won those voters by 21, 25 and 37 points, respectively. In each state, those voters made up about a fifth of the electorate.

It was one-fifth of the electorate because only about 40 percent of voters liked both Trump and Clinton. It’s a smaller universe today, because Trump’s image is slightly better and Biden’s is significantly better than Clinton’s. But it’s also true that this universe of voters probably comes more from the right side of the electorate, given Biden’s superior image rating. And yet Trump barely gets any support here.

For now, let’s set aside the numbers in the head-to-head matchups. The fact is that Trump can win reelection with an approval rating in the low-to-mid 40s, which is where it’s been throughout his presidency. But he can’t do it if he’s not locking down basically everyone who approves of him and is getting beaten among those who dislike both him and his Democratic opponent. If those findings are accurate, then focusing on his low approval rating might actually oversell his reelection chances.

Poll: Warren jumps over Sanders for second place behind Biden

As Politico reported, Sen. Elizabeth Warren has leapfrogged Sen. Bernie Sanders for second place nationally in the Democratic presidential primary, according to a new poll out Thursday.

The new Fox News poll of registered voters who say they plan to participate in the Democratic primary or caucus in their state shows that although Warren still trails former Vice President Joe Biden, pulling in 20 percentage points to his 31, she posted an 8-point gain over the previous survey conducted last month. Sanders dropped 5 points in the poll, good for third place with 10 percent support.

The poll shows remarkable growth for Warren over the last five months — she has gained 16 points since March — while Biden has remained somewhat steady over the same period. Sanders’ second-place lead has diminished steadily over the same period, with Thursday’s survey the first in which he dropped into third place. He has dropped 13 points since May. Sen. Kamala Harris is not far behind him in fourth place, with 8 percent.

Thursday’s poll has no bearing on next month’s debate in Houston since every candidate polling above 2 percent has already reached the polling threshold for the debate stage.

The Fox poll shows that any of the top four Democratic contenders would best President Donald Trump in a hypothetical head-to-head matchup. Biden opens up the widest lead against Trump, beating him 50-38, while Harris would have the closest contest — though still outside the margin of sampling error — beating Trump 45-39.

The poll also shows a nearly even split in what Democratic primary voters are looking for in a presidential candidate. Forty-eight percent of voters said they’d like a Democratic nominee to build upon the legacy of former President Barack Obama, while 47 percent said they’d prefer a new approach.

The survey was conducted Aug. 11-13 among a random national sample of 1,013 registered voters and has a margin of sampling error of plus or minus 3 percentage for all registered voters. It has a margin of error of plus or minus 4.5 percentage points for the 483 Democratic primary voters surveyed.

Voters Care About Biden’s Age — Not About His Gaffes

Also, Fivethirtyeight Reported that After a week’s worth of media focuses on a series of gaffes and misstatements by former Vice President Joe Biden, Democratic voters are reacting by … apparently not giving much of a damn.

Granted, there hasn’t been a ton of polling this week. But what data we have looked just fine for Biden. His position in Morning Consult’s weekly tracking poll — first place with 33 percent of the vote — is unchanged. In HarrisX’s tracking poll for ScottRasmussen.com, he’s at 28 percent, which is up 3 percentage points from a week ago. He’s down 1 point in YouGov’s weekly poll, and he did get some middling numbers in New Hampshire this week. But Biden also got a good poll in South Carolina.

Not that you should necessarily have expected any differently. Biden has survived more serious problems — a rough first debate, a group of allegations about inappropriately touching women — only to see his numbers rebound from any decline (if they were even affected in the first place). So it probably would have been optimistic for Biden’s rivals to expect a handful of verbal gaffes to move his polls, especially given that Biden already came into the campaign with a reputation for being gaffe-prone. Some influential Democrats are focusing on those gaffes for another reason, though: They see them as a sign of Biden’s advancing age. (Biden is 76 and would be 78 upon assuming the presidency.) Whether those Democrats are genuinely concerned about Biden’s age insofar as it might affect his performance against President Trump, or whether they’re using it as an excuse to promote the candidacies of younger Democrats who they happen to like better anyway, undoubtedly varies from case to case.

A lot of rank-and-file voters do have concerns about Biden’s age. An NBC News/Wall Street Journal poll in February found that 62 percent of voters had reservations about voting for someone aged 75 or older. Other polls have also shown advanced age to be a concern among Democrats, Republicans and independents alike.

But there hasn’t been much discussion of age from the other candidates. Eric Swalwell brought it up explicitly in the first presidential debate when he urged voters to “pass the torch to a new generation of Americans.” Rather than echo Swalwell’s argument, however, Kamala Harris tried to defuse the situation by suggesting that discussions of age and generational change were tantamount to schoolyard insults. “America does not want to witness a food fight, they want to know how we are going to put food on their table,” she said.

Maybe anti-Biden Democrats — and the other candidates — think they’re being coy by using Biden’s gaffes as a proxy for concerns about his age. No reason to get tarred with allegations of ageism, they figure, or to risk offending older voters who turn out in big numbers in the primaries. (Also, if the candidate they prefer to Biden is Bernie Sanders, they have the further problem that Sanders is a year older than Biden at 77.)1 Show rather than tell, as the maxim goes: Plant a few seeds and let voters build a narrative about Biden’s age on their own, without having to give them the hard sell. This strategy might even work! It’s still fairly early, and Biden’s age is perhaps his biggest risk factor — bigger, in my view than his policy positions, which are often more in line with the views of the average Democrat than those of the more liberal candidates.

But especially in the era of Trump — who, of course, has already begun to question Biden’s mental fitness — there might also be something to be said for saying the quiet part out loud. In a poll conducted shortly after the first debate, some Democratic voters explicitly used Swalwell’s “pass the torch” language when asked an open-ended question about why they didn’t want to vote for Biden. And they were much more likely to explicitly mention Biden’s age than to use vaguer responses, such as that he was “out of touch.”

There’s also a risk to anti-Biden Democrats in drawing voters’ attention to gaffes or other incidents that voters view as relatively minor. Biden remains an extremely well-liked figure among Democratic voters; 75 percent of them have a favorable view of him, according to Morning Consult’s latest polling. So three-quarters of the electorate is going to start with a predilection against sympathizing with critiques of Biden. If those critiques aren’t really bringing the goods and instead seem like petty grievances, those Democrats may conclude that the case against Biden is a lot of hot air.

Meanwhile, if the false alarms continue — as in, Democrats on Twitter or on podcasts predict Biden’s demise and the polls are unmoved — the media may come to view Biden as a Trump-like “Teflon” candidate who isn’t greatly affected by gaffes and scandals. That could reduce their appetite for covering them in the future — even if more serious ones occur than what’s taken place to date.

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