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Trump must choose between economy and trade war

17 0 0
25.08.2019

The White House is becoming increasingly volatile and erratic in its pronouncements about the economy and trade as the internal contradictions between its policies become obvious.

President Donald Trump and his advisers have blamed the Federal Reserve and a range of foreign governments including China and Germany for the evident slowdown in the economy, especially manufacturing, saying that:

U.S. interest rates are too high.

The U.S. dollar is too strong.

Foreign governments are manipulating their currencies to obtain an unfair competitive advantage.

Past trade deals were one-sided.

In all, China, Germany, Japan, South Korea and a host of other countries have been blamed for trade and financial policies that harm the United States, according to the administration.

But more than two years into a bold effort to remake U.S. international policy by using tariffs to increase leverage in trade negotiations, the trade deficit is still growing at an annual rate of 15%.

DEFICIT FUNDAMENTALS

There is no evidence the U.S. currency is significantly overvalued or that currency misalignment is contributing to the deficit (https://tmsnrt.rs/2Zc2SRJ).

The U.S. dollar exchange rate against a trade-weighted basket of other currencies is close to its long-run average, once adjusted for differential inflation rates.

Instead, the deficit stems from the fact that the United States spends more on investment in new buildings,........

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