Revised Forecasts Begin

Thu, 2017/01/05 - 8:30am | Your editor
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In defiance of a host of international treaties which the US ratified, Pres.-elect Trump has threatened to impose illegal import tariffs on Ford and Carrier products imported into the US from Mexico. Ford, the only US carmaker which did not get government handouts during the global recession of 2008-9, meekly capitulated to the pressure to satisfy its PR department.

If the new Administration wants to continue such cheap-shot protectionist actions once it has taken office, we will need to pass a new system for taxing corporate profits at the federal level, comparable to how some foreign countries and the European Union run their value-added tax systems. If not the US will be sued for violations of World Trade Organization and North American Free Trade Agreement treaties. A major tax reform to include VAT will be divisive but so also will other proposals being kicked around by the Trump team, ranging from lower taxes on capital gains, another round of allowances for repatriation of money held overseas in low-tax jurisdictions, and changes in the tax code to help the poor and cut back on the benefits to the rich by removing exemptions—and also getting rid of the so-called death tax (on inheritances). But the trade features, according the Larry Summers, amount to “voodoo economics”. Summers is a former (Democrat) Treasury Secretary and a member of the Harvard Economics faculty.

It is relatively easy to threaten major companies with retaliation for manufacturing abroad. But in real day to day business practice once in office, Mr Trump will find it harder to posture and pose as a reformer and friend of blue collar workers. It is comforting that the new Congress dominated by the Republicans will not start its session by allowing corrupt financing practices, but it is terrifying that the Affordable Care Act is now the first thing up for dismantling.

*The dollar yesterday fell the most since Trump triumphed in the election in part because the key London interbank offer rate or LIBOR went over 1% for the first time since the global economic crisis in 2009. Meanwhile a Sino-Trumpian goal—stopping outflows of the renminbi from China which cut the exchange rate against the dollar—is being fostered by the authorities in Hong Kong who have now set the overnight deposit rate to an all-time high of 80%. This boosted the RMB inside the country. Forcing money back into China boosts growth by making more funds available. State sector firms are also being forced to sell the forex holdings, according to Mark Chandler of Brown Bros. Harriman. This Chinese LunarNew Year, for the Year of the Rooster, begins very early, Jan. 28.

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