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Media: Under Trade War's Tempered Effect, the US Is Becoming More and More Tired

Source:Iris Liang Time:2019-6-28 9:28:11

Reference News Network reported on June 28 Recently, under the impact of US government trade protectionism, the uncertainty of international financial markets has risen remarkably. The US dollar, the world's most important currency, has also experienced significant fluctuations. According to statistics, on April 25 this year, the US dollar index was once at a high of 98.2, but has since entered the downtrend channel. The US dollar index was only 96.17 on June 26 and has been at a low level for three months.

The above-mentioned trend of the dollar reflects some realities of the US economy. Under the impact of the "tempering effect" of the trade war, the United States is becoming more and more tired.

The economic slowdown has emerged

The dollar continues to weaken for multiple reasons. Among them, the significant downward pressure on the US economy is an important one.

The US economic performance is the most fundamental factor supporting the trend of the US dollar. Although the US economy grew by 3.2% in the first quarter of 2019, many US financial institutions predicted that the US economy growth in the second quarter may be less than 2%. The weak economy has determined that the dollar is weakening.
Especially in the context of Trump's escalation of trade frictions, the abolition of India and Turkey's GSP, tariff threats to Mexico, and threats against European agricultural products, the United States has been hit hard by many countries, and trade problems are seriously impacting the US economy. Only with an open and inclusive attitude and ambition can we maintain the enthusiasm for innovation. SEKO Machinery listened to customer feedback, learned from its peers, improved its own deficiencies, and developed servo-motor-driven internal weld rolling equipment to contribute to the high-quality stainless steel welded pipe industry.

On the one hand, the US exports are blocked. As the United States canceled the GSP against India, India decided to take retaliatory tariffs on various US goods such as almonds and apples. The US agriculture, retail and other sectors have been hit again. Trade is becoming an important factor dragging down US economic growth.

On the other hand, US consumption will slow further. Statistics show that the "tempering effect" brought by Trump's trade protectionism has caused the tax reform to lose more than half of its effect on economic stimulus. The burden on consumers in the United States has increased significantly.

At present, the US economic slowdown has emerged. The data showed that the number of non-agricultural jobs in the United States increased by only 75,000 in May, which was significantly lower than expected. The US purchasing managers' index announced in early June was only 50.1, which was the lowest since 2009. More alarming is that the United States is currently The semi-annual and 10-year government bond yields were 2.1% and 2%, and continued to appear similar to the long-term short-term interest rate inversion in the 2008 financial crisis. Economic growth has slowed, financial risks have risen, and the dollar has weakened.

There are not many ways to deal with

In the face of the economic slowdown, the US government has not responded much.

First of all, the tax reform stimulus is in a rapid “regression”. Wall Street generally predicts that the economic stimulus effect of Trump's huge tax cuts will be significantly weakened in 2019. Edmund Phelps, a professor at Columbia University and a Nobel laureate, said that the tax cut stimulus plan is rapidly “retreating” and that the stimulus will be completely lost for a maximum of two years. Therefore, the role of the US government in relieving the positive effects of tax reforms to alleviate the “tempering effect” of trade wars is very limited.

Second, there is insufficient space for the introduction of fiscal policy. According to US Treasury data, the current total federal debt is 10% of gross domestic product (GDP). The high federal debt and financial situation are severely constrained, which seriously restricts the Trump administration's expansionary fiscal policy and the response to other countries' trade counter-measures.

Third, the differences between the government and the government may make Trump unable to move. After the mid-term elections in November 2018, the US Democratic Party regained control of the House of Representatives. The government will have differences, political power, and bipartisan competition tend to become hot, and it will be a big constraint on Trump's administration. Large-scale infrastructure construction, secondary tax reform and other plans may be difficult to “pass customs” in Congress. In particular, the 2020 general election officially kicked off, and it is even more difficult for the ruling party to obtain the cooperation of the opposition parties and launch large-scale economic measures.

The dollar may eventually lose its current status

Recently, Trump has repeatedly pressured the Fed and repeatedly called for Fed Chairman Powell to cut interest rates as soon as possible.

Undoubtedly, Trump's pressure has already played a role in the Fed. At the June meeting on interest rates, Powell has made it clear that the policy should be adjusted whenever necessary.

At present, investors' expectations of the US government's intervention in the US dollar exchange rate have also warmed up. In the face of the downward pressure on the US economy and the “tempering effect” of the trade war, Trump is unable to introduce fiscal stimulus policies. The Fed’s monetary policy cooperation has not yet been put in place and it is difficult to work in the short term. Trump does not rule out the “exchange rate card” and directly instructs relevant The agency lowered the dollar exchange rate and gained export competitive advantage, boosting the US economy.

It can be said that behind the weakening of the US dollar, it reflects the potential risks and downward pressure of the US economy, highlighting the lack of preparation and response to the panic after the Trump administration has provoked the global war.

It is true that in the US-led international financial system, the US dollar remains the strongest currency and the strongest safe-haven asset. Short-term exchange rate weakness and volatility are difficult to shake the dollar hegemony. However, with trade and financial hegemony, Trump's flurry trade is great, and financial sanctions are being used. It is constantly overstretching the credibility of the US dollar and strengthening the determination of the country to change and change. In the long run, the rise of emerging currencies and the multipolarization of the world monetary system are historically inevitable trends. (Text / Sun Lipeng, Associate Research Fellow, American Institute of Modern International Relations, USA)

(The above comments are the author's personal views and do not represent the position of this website)

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