Source: Wall Street
The passage of the tax reform bill at the end of last year and the recently announced $4.4 trillion budget show Trump's ambitions to boost the US economy.
At the same time, Trump's trade war with China has begun as the US Department of Commerce levies more than 100 per cent on imports of Chinese cast iron sewer fittings and may impose high tariffs on steel and aluminum.
However, you can't have both fish and bear paw. An article from the Council on Foreign Relations pointed out thatIn addition to exposing the United States to a more serious fiscal deficit, Trump's fiscal stimulus may prevent him from meeting his own trade goals.
On the one hand, under the fiscal stimulus, the US fiscal deficit has reason to become higher.
The article points out that in this round of global economic recovery in the past, US imports grew at only 1/4 of the growth rate of domestic demand, so the spillover impact of US fiscal stimulus may be less than that of other countries in the world.
At the same time, the original purpose of the tax reform is not to maximize the impact of domestic demand, but to reduce the tax burden and attract American companies to return to profits.
In addition, in most cases, fiscal easing will change the position of monetary policy, which in turn promotes the change of exchange rate. But in the case of the United States, fiscal policy would have had a much smaller impact on the trade deficit if the Fed had not adopted a more austerity attitude, or if the dollar had not appreciated with tightening.
The economist Krugman predicts that, together with the tax reform passed at the end of last year, the US fiscal deficit will rise by 2 percentage points as a percentage of GDP, while the IMF forecasts that the US current account deficit will rise by 1 percentage point to 4 per cent.
The article also points out another possibility.That is that fiscal stimulus does generate more demand, but the ultimate beneficiaries are America's trading partners.
The article points out that the closer the ability of the economy to operate, the more demand created by stimulus will flow to other countries. In the fourth quarter of last year, for example, US domestic demand growth accelerated and its contribution to GDP growth rose from 2.5 per cent to 3.5 per cent. However, more than 50 per cent of demand consumption was spent on imports.
Photo: American Association of Foreign AffairsIn other words, the growth in US demand will eventually benefit large exporting economies such as China, South Korea, Japan and Germany.