Recessions in the U.S. are typically caused by monetary tightening,
financial crises stemming from asset bubbles or external shocks. In
spite of the U.S. Federal Reserve’s U-turn on interest rate
normalization, all three are casting darkening shadows over the American
economy. Morgan Stanley warned
in a report released this summer that the U.S. has entered a new phase
of rising probability of a recession. What may spark the next recession,
however, remains obscure. The final trigger is usually something
entirely unanticipated. For instance, what tipped the economy over the
edge and ignited the 2008/09 global financial crisis is not the widely
observed collapse of the American housing bubble, but the unsuspected
extraordinary concentration of ownership of mortgage-backed securities.
This is why President Trump’s actions on trade and currency, which has
made the global economy so much more turbulent, is so dangerous.
Economic turbulence is spawning potential recession triggers that could
unexpectedly tip the American economy into recession.
By weaponizing both trade and currency, President Trump has infected the global economy with deep uncertainty. In imposing sanctions and tariffs—as well as banning American firms from doing business with a growing list of foreign companies on grounds of national security—Trump has enfeebled world trade, turning it into a brake on global growth. The business outlook has dimmed because companies are no longer sure where and with whom they can invest and expand without incurring the ire of the President, and it is affecting companies in the U.S. as well as in the rest of the world. The China-U.S. trade war is especially damaging because it effectively puts business investment on ice and suspends any meaningful forward planning. Many American companies are also deeply worried about their business in China, which in recent years generates close to $300 billion revenues annually.
Trump is also weaponizing the U.S. dollar, instructing the U.S. Treasury to put more countries under surveillance for suspected “currency manipulation,” subjecting them to potential retaliatory sanctions. No surprise that China has been named currency manipulator after the yuan’s recent depreciation; but the list also includes many of America’s closest allies in Asia and Europe. Furthermore, Trump has also changed the rules to make it easier to label a country a currency manipulator. However, concurrent to these moves is Trump’s own hectoring the Federal Reserve to cut interest rates both to shore up faltering domestic growth and to weaken the dollar to make American exports more competitive. All of these shenanigans have made currency markets more volatile, undermining global trade growth, according to research by IMF chief economist Gita Gopinath.
Read more at: The Next U.S. Recession Looking More Likely As Trump Weaponizes Trade And The Dollar
By weaponizing both trade and currency, President Trump has infected the global economy with deep uncertainty. In imposing sanctions and tariffs—as well as banning American firms from doing business with a growing list of foreign companies on grounds of national security—Trump has enfeebled world trade, turning it into a brake on global growth. The business outlook has dimmed because companies are no longer sure where and with whom they can invest and expand without incurring the ire of the President, and it is affecting companies in the U.S. as well as in the rest of the world. The China-U.S. trade war is especially damaging because it effectively puts business investment on ice and suspends any meaningful forward planning. Many American companies are also deeply worried about their business in China, which in recent years generates close to $300 billion revenues annually.
Trump is also weaponizing the U.S. dollar, instructing the U.S. Treasury to put more countries under surveillance for suspected “currency manipulation,” subjecting them to potential retaliatory sanctions. No surprise that China has been named currency manipulator after the yuan’s recent depreciation; but the list also includes many of America’s closest allies in Asia and Europe. Furthermore, Trump has also changed the rules to make it easier to label a country a currency manipulator. However, concurrent to these moves is Trump’s own hectoring the Federal Reserve to cut interest rates both to shore up faltering domestic growth and to weaken the dollar to make American exports more competitive. All of these shenanigans have made currency markets more volatile, undermining global trade growth, according to research by IMF chief economist Gita Gopinath.
Read more at: The Next U.S. Recession Looking More Likely As Trump Weaponizes Trade And The Dollar
No comments:
Post a Comment