Happy Inauguration Day

Fri, 2017/01/20 - 1:51pm | Your editor
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Here are some Bubble or Trouble foreign policy outcomes facing the new Administration. Harvard Government Professor Alaisdair Ian Johnston wrote in its November Epicenter blog:

“Trump’s expected China policies may have a direct bearing on [American] welfare.

First Trade

“Taken at his word, he wants to impose high tariffs on Chinese imports to compel Beijing to appreciate its currency, stop stealing US intellectual property, and open its markets to more US investment and exports. Many economists expect that China will react—at least initially—by raising tariffs on US goods, further restricting US investment, while shifting imports to alternative markets. The result will be a trade war in which US consumers are harmed by inflation, with no concomitant regrowth in traditional manufacturing jobs, and possibly a reduction in critical exports to China, such as aircraft.

 

“The Chinese may even engage in cost-imposition of their own by dialing up conflict on a range of other issues (North Korea sanctions, counterterrorism, international health, cyber commercial espionage, Taiwan, maritime disputes) to remind the US that China can impose costs too.

 

“Trump may change his mind about the wisdom of high tariffs as he listens to corporate advisors, and as he contemplates the costs to Chinese partnerships he seeks for his own personal wealth. Instead he may simply impose some symbolic cost on China and then sell this as a major policy victory.

 

Then Warning on Global Warming

Any decline in cooperation with China on global warming may not be considered a welfare cost for Trump, given his apparent belief that anthropogenic climate change isn’t happening. But it will make China, [not] the US, the 'responsible stakeholder' on climate change. Other countries will look to Chinese leadership.

“The unintended or unpredictable effects of his policy preferences, personality traits, and personal economic interests may be even greater if, as his initial appointments suggest, his China policy team reflects the gamut of GOP factions—moderate Asia specialists, Tea Party-leaning advisors who support tough economic and military policies toward China but are less interested in exporting US values, and neo-cons who want to be more proactive in undermining the legitimacy of the Communist Party.”

His colleague in the Government Dept., Jorge Dominguez, wrote on:

Latin America

“Trump has the opportunity to advance policies to promote interests that the US and Latin America share. The US does not encounter in Latin America many of the challenges elsewhere. No terrorist attack has been launched on the US from anywhere in Latin America. There are no US troops in combat in the region. There are no nuclear-weapons states in Latin America, nor are there interstate wars. The last revolutionary insurgency is likely to be ending in Colombia.

“[Regional] governments are looking for ways to cooperate with the US. Mexico has been, for many years, a far more important destination for US exports than China; and Mexico and Canada are a key part of the explanation why there are still automobiles manufactured in North America. (US auto companies would have gone bankrupt without their NAFTA partners or without the US government’s rescue of these firms.) Here’s a critical fact that was overlooked in the US election: net Mexican migration to the US has been at zero (yes, zero!) for the entire current decade. There is an opportunity to think constructively about immigration policy.”

These are risks beyond the messy divisions in the new Administration also on tax policy and exchange rates. But the impact on stock markets will be great. We are continuing to look for new postions or ones to add to, and there is one today.

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