Economy News

Sunday, April 16, 2017

Two questions Trump must answer if he wants to drain the tax swamp

Trump has promised a ‘phenomenal’ plan to reform America’s labyrinthine tax system, but it’s a feat no president has achieved since Reagan

This Alabama town is rebounding – but Trump could change that

Numerous government programs have aided economic recovery for the people of Muscle Shoals. Now the man they voted for might cut them
Heavenly Grace Ministries in Sheffield, Alabama, near Muscle Shoals. The area has led the state’s economic growth, but progress is threatened by proposed spending cuts.
Heavenly Grace Ministries in Sheffield, Alabama, near Muscle Shoals. The area has led the state’s economic growth, but progress is threatened by proposed spending cuts. Photograph: Eric Schultz for the Guardian

Friday, April 14, 2017

Trump is reckless – but he knows he can't afford to antagonise China

His comments during the campaign didn’t bolster high hopes, but his summit with Xi Jinping showed he needs China’s business
Donald Trump and Xi Jinping

Trump knows he needs to do business with China’s Xi Jinping. Photograph: Jim Watson/AFP/Getty Images
Donald Trump’s comments about China during the US presidential campaign didn’t exactly bolster high hopes for Sino-American relations once he was elected. Trump denounced China for “taking our jobs” and “[stealing] hundreds of billions of dollars in our intellectual property”. He repeatedly accused China of manipulating its currency. The low point came last May, when Trump warned his followers: “We can’t continue to allow China to rape our country. That’s what they’re doing. It’s the greatest theft in the history of the world.”
Given such inflammatory rhetoric, many people understandably felt considerable trepidation in the runup to Trump’s summit with the Chinese president, Xi Jinping, at Trump’s Mar-a-Lago estate. It wasn’t hard to imagine a refused handshake or the presentation of a bill for payment, like the one Trump reportedly gave the visiting German chancellor, Angela Merkel, (a report denied by the White House).
Instead, Trump treated Xi with considerable deference. One explanation is that he was preoccupied by the impending US missile strike on Syria. Another is that it is easier to command Trump’s respect when you have an aircraft carrier, 3,000 military planes, and 1.6 million ground troops.
But the best explanation is surely that the US depends too heavily on China, economically and politically, for even a president as diplomatically reckless as Trump to spark a conflict.
Economically, the US and China are too closely interlinked through global supply chains to be able to cut ties. US companies not only compete with Chinese imports; they also rely heavily on them. Retailers such as Target and Walmart rely on Chinese imports to stock their shelves. Electronics companies such as Apple rely on workers in China to assemble their products. And the idea that the US could easily source the same inputs from other countries is fanciful.
Put simply, while Trump has repeatedly observed that China sells more to the US than the US sells to China, starting a trade war in an effort to correct this supposed imbalance would still cost American business very dearly.
And if there is one constituency that Trump listens to consistently, it is business. Aggressive US trade sanctions against China would send equity prices plunging, alarming a US president who measures his economic policy success by the level of the stock market. The 1930 Smoot-Hawley Tariff didn’t cause the Great Crash, much less the Great Depression. But that tariff and the foreign retaliation it elicited sent the stock market down still further, which was hardly helpful.
Politically, too, the US cannot afford serious conflict with China, given the growing crisis on the Korean peninsula, which North Korean provocations and Trump’s incautious reaction have brought to the fore. Posturing aside, Trump will be forced to recognise that military force is not an option. A surgical strike against North Korea’s nuclear facilities would most probably not succeed, while a massive attack would provoke devastating retaliation against South Korea.
The only feasible strategy is tighter sanctions and political pressure to bring North Korea to the negotiating table. And the only party capable of tightening sanctions and applying effective political pressure is China, whose goodwill the US now regards as essential.
Trump’s about-face on China is of a piece with his “recalibration” on repealing Obamacare, reforming the tax code, organising a large-scale infrastructure-investment initiative, and renegotiating the North American Free Trade Agreement (Nafta). In each case, his glib campaign slogans have run up against the hard reality of actually making policy.
In all these areas, Trump is learning that he is hemmed in by the same constraints that led Barack Obama’s administration to make the choices it did. As with Obama, the agent of change is turning out to be an agent of continuity.
The US has some legitimate economic grievances against China – for example, over its treatment of American intellectual property and US beef and grain exports. But the appropriate venue for adjudicating such disputes is the World Trade Organisation. That is where Trump’s administration, like Obama’s, is likely to end up.
The Trump administration could yet label China a currency manipulator, rebuking it for keeping its exchange rate artificially low. It could do so either now or later in the year. But that accusation would be contrary to the facts: the renminbi is now fairly valued, and China has actually been intervening to support the exchange rate, not weaken it further. Inside the Washington, DC beltway, however, facts are no longer what they once were. Singling out China for manipulation might still appeal to a president who values symbolism as much as Trump does.
But little of consequence would follow. The US depends too much on Chinese cooperation to risk overly antagonising China’s leaders. Labelling China a currency manipulator would be the economic policy equivalent of launching 59 cruise missiles at an isolated air base in Syria. It would be much sound and fury, signifying nothing.
 Barry Eichengreen is professor of economics at the University of California, Berkeley; Pitt professor of American history and institutions at the University of Cambridge; and a former senior policy adviser at the IMF.

Bullying of disabled people has got worse – because it’s government-sanctioned

People feel they have permission to abuse us, because austerity has rendered us second-class citizens, excluded from society. This has to be addressed
A protest in Westminster against social care cuts.
A protest in Westminster against social care cuts. Photograph: Alamy Stock Photo.

Is this the beginning of the end for neoliberalism?

Christine Lagarde, head of the IMF

Christine Lagarde, head of the IMF. Her claims that the IMF helped avoid another great depression in 2008 are challenged by Michael McLoughlin. Photograph: Clemens Bilan/EPA

Is business starting to get spooked about Donald Trump?

After his U-turns at home and Dr Strangelove-style antics abroad, markets and investors are supposing that the president is making it up as he goes along
A scene from Dr Strangelove

A scene from Dr Strangelove, a satirical film made in 1964 that bears no relation at all to Trump’s foreign policy. Photograph: Allstar/Cinetext/Columbia.
Financial markets are starting to have doubts about Donald Trump. The euphoria that sent share prices on Wall Street to record levels has quickly dissipated amid fears that the new president is dangerously unpredictable.

Friday, April 7, 2017

Wall Street’s love affair with Trump cools as healthcare bill sows welcome doubts

US president’s failure to win backing for his repeal of Obamacare has delivered a dose of reality to the markets
The healthcare bill debacle has given Wall Street a more realist view of Trump’s abilities as a politician.
The healthcare bill debacle has given Wall Street a more realist view of Trump’s abilities as a politician. Illustration: David Simonds/Observer

A theme tune for Trump supporters – stand by your conman

Though the president is ruining life for his fanbase, many would vote for him again. And the sneery haters just make things worse
A Donald Trump rally in Louisville, Kentucky.
A Donald Trump rally in Louisville, Kentucky. Photograph: Mark Lyons/EPA

Thursday, March 30, 2017

No, wealth isn’t created at the top. It is merely devoured there

Bankers, pharmaceutical giants, Google, Facebook ... a new breed of rentiers are at the very top of the pyramid and they’re sucking the rest of us dry
Goldman Sachs CEO Lloyd Blankfein
‘When current Goldman Sachs CEO Lloyd Blankfein was asked about the purpose of his job, his straight-faced answer was that he is “doing God’s work”.’ Photograph: Mark Wilson/Getty Images

Tuesday, March 28, 2017

Trump is wrong to criticise Germany over trade – he should look closer to home

The president thinks Germany’s trade surplus is the result of manipulating the euro, but Wall Street fuelled the problem
Donald Trump and Angela Merkel
Donald Trump and Angela Merkel: does the US president need German lessons? Photograph: Michael Reynolds/EPA