How Trump Polices might affect America economy - Canadanewsmedia
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How Trump Polices might affect America economy



The Fed cut interest rates this week for the first time in nearly 11 years, effectively lowering the odds of a recession in the United States. Just 24 hours later, Trump raised those odds by vowing to unleash tariffs on $300 billion of US imports from China, which will for the first time directly impact American shoppers.

The new front in the trade war will only add to the downturn in manufacturing spanning the globe. It will further dent shaky business confidence and could even puncture the optimism among consumers. In short, little good can come from these new tariffs — and the ensuing retaliation from Beijing.

“It could be incredibly damaging to the global economy. The risk of a recession has gone up because of the ratcheting up of the trade war,” said Kristina Hooper, chief global market strategist at Invesco.

Trump blindsided investors on Thursday by announcing an abrupt end to the trade truce between the United States and China. Although talks will continue, Trump tweeted that he plans to impose a 10% tariff on the remaining US imports from China.

US stocks plummeted on the tweet, a selloff that deepened on Friday. Cash rushed into ultra-save government bonds, sending Treasury yields to multiyear lows.

“That’s telling me there is a lot of concern we are headed toward a significant global slowdown,” Hooper said.

Trump has also kept open the possibility that tariffs on China will go up to 25%.

Consumer goods targeted

Beyond the direct impact of the tariffs, the escalation in trade tensions risks dealing a sizable blow to business confidence.

The on-again, off-again nature of the trade war makes it difficult for CEOs to plan for the future. Instead of hiring workers and opening new factories, many companies may decide to sit on the sidelines.


“Tariff man is back and more dangerous than ever to our economy,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients on Friday.

In an interview with CNN Business, Boockvar argued that the only thing keeping the United States out of a recession is the strength of consumer spending.

However, Trump’s tariffs would impact a wide swath of consumer products, likely resulting in higher prices on items including apparel, footwear and electronics such as smartphones, laptops and tablets.

In 2018, 42% of apparel and 69% of footwear sold in the United States was imported from China, according to the American Apparel & Footwear Association.

“This is going to damper consumer spending,” Boockvar said.

If the tariffs go into effect, Boockvar said there is likely a greater than 50% chance the United States succumbs to a recession.

How will China respond?

It’s possible that Trump, spooked by market turmoil, backs down on his latest tariff threat. Another possibility is that the looming tariffs force Beijing to make enough concessions to allow both sides to claim victory. In either case, that would be a huge positive for the economy.

But some observers fear Trump’s increased pressure on China will backfire, provoking retaliation that deepens the economic pressure.

“Trump’s gambit is unlikely to work,” Michael Hirson, Eurasia Group’s practice head of China and Northeast Asia, wrote in a note on Thursday. “Chinese President Xi Jinping cannot afford the perception that he has been blackmailed into a deal by Trump.”

A spokesperson from China’s Ministry of Commerce said in a statement that although China does not want a fight, the country “will fight if necessary.” The official said that China will have to “take necessary countermeasures,” but did not explain what that retaliation will be.

Beijing’s options include firing back with tariffs of its own, restricting the supply of the rare-earth minerals that the global tech industry relies on, and devaluing the country’s currency.

Piling onto the global factory slowdown

Even before this week’s trade escalation, the world’s manufacturing industry was in a severe slowdown.

The Barclays global manufacturing confidence index dipped further into negative territory in July. Barclays said it’s “yet another warning of an ongoing global industrial recession.”

US factory activity tumbled in July to the weakest level in nearly three years.

Many blame the trade war for the global manufacturing downturn, but that may only be partially true.

Apple 'gut punch': Trade war will cut iPhone sales by 8 million, analyst saysApple 'gut punch'Trump

Lakshman Achuthan, co-founder of Economic Research Institute, said the factory slowdown began before the trade war erupted in the spring of 2018.

“The trade war is entirely a negative. It is piling on top of the cyclical downturn,” Achuthan said.

In other words, the United States is self-inflicting a shock at a time when the global economy was already exposed.

“People don’t understand. We are slow walking toward a window of vulnerability. A negative shock we thought we could withstand becomes a recessionary shock,” Achuthan said. “We’re definitely on recession watch.”

Others doubt that the 10% tariffs on China will be very destabilizing because the Federal Reserve is coming to the rescue with more easy money.

“The risk to growth is somewhat small,” said Aditya Bhave, senior global economist at Bank of America Merrill Lynch, pointing to the Fed’s rate cuts as a cushion.

Risk of a ‘feedback loop’

Some have speculated that Trump is escalating the trade war to get the Fed to listen to his pleas for lower interest rates.

That would be a risky gamble because there is no guarantee the Fed will act, nor that the rate cuts will work.

China has 'few good options' to hit back against new US tariffsChina has 'few good options'Trump

“It simply makes no sense to risk a global recession in order to get the Fed to cut rates,” Win Thin, global head of currency strategy at Brown Brothers Harriman, wrote in a note to clients on Friday.

Bhave said it’s possible Trump turned up the heat on China because he feels emboldened by the Fed’s rate cuts.

“We think the Fed is inadvertently encouraging a more hawkish stance on trade,” he said.

Wall Street is already pricing in the chances of more rate cuts later this year in response to the spike in trade tensions.

“There is a risk we get stuck in a feedback loop,” Bhave said. “The Fed keeps cutting rates, trade policy keeps getting more hawkish and the Fed runs out of ammunition to fight the next recession.”

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EU incoming economy chief calls for less restrictive budget policies




By Gavin Jones

ROME (Reuters) – The European Union needs looser budgetary policies and an overhaul of its fiscal rulebook, the bloc’s designated economics commissioner said in an article published on Sunday.

Writing in Italian financial daily Il Sole 24 Ore, Paolo Gentiloni said that while the EU’s deficit and debt rules must not be ignored, they needed to be “reviewed and updated”.

“It’s time for countries which have fiscal space to use it, in an overall context of less restrictive budgetary policies,” Gentiloni, due to replace Pierre Moscovici as economic and financial affairs commissioner on Nov. 1, said.

The former Italian prime minister warned that with the EU economy slowing, “the risks of a prolonged period of low growth must not be overlooked” and the task of stimulating the economy “cannot be left to monetary policy alone”.

Gentiloni will have an important role in scrutinizing Italy’s draft 2020 budget which was submitted to the Commission last week.

The budget plan raises next year’s structural deficit — which excludes the effect of GDP growth fluctuations — by 0.1% of gross domestic product, reversing a previous commitment by Rome to lower it by 0.6%.

EU Commission Vice President Valdis Dombrovskis told Reuters on Friday that Brussels would ask Italy for “clarifications” over its budget intentions.

However, even though the budget seems to flout EU rules, many analysts expect the Commission to take a lenient approach and avoid a prolonged dispute with Rome like the one that broke out last year when Italy had a less EU-friendly government.

Gentiloni, who comes from the pro-Europe Democratic Party which now governs with the anti-establishment 5-Star Movement, said it was crucial that the budget plan comes from a government that has a constructive approach toward the EU.

Among what he termed new instruments needed help growth and stability, Gentiloni cited an EU-wide unemployment insurance scheme, without going into details.

(Reporting by Gavin Jones; Editing by Canada News Media)

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Lebanese continue protests, demand government to fix economy




Tens of thousands of demonstrators have gathered in Lebanon‘s streets on Sunday for a fourth day of anti-government protests that have led to the resignation of a Christian party from the government.

Demonstrators, who have been on the streets since Thursday, have pledged to continue marching despite the resignations late on Saturday of four government members from the key political party, Lebanese Forces.

Labour Minister Camille Abousleiman, one of the four to quit the government, told Al Jazeera shortly after the decision that they had “lost faith in the government’s ability to effect change and address the problem”.


Lebanese citizens have been suffering from tax hikes and dire economic conditions in the heavily indebted country.

Lebanon’s public debt stands at around $86bn – more than 150 percent of gross domestic product, according to the finance ministry.

The grievances and anger at the government’s lack of solutions erupted into protests on Thursday, sparked by hikes in taxes including a proposed $0.2 tax on calls via messaging apps such as WhatsApp.

Such calls are the main method of communication for many Lebanese and, despite the government’s swift abandonment of the tax, the demonstrations quickly swelled into the largest in years.

“It is day four and protesters are back on the street. It’s not just in the capital Beirut, but across the country. The message they [protesters] are giving is of defiance and that they will continue to demand the resignation of the government,” said Al Jazeera’s Zeina Khodr, reporting from Beirut.

“While there are tens of thousands on the street protesting, there are still people who are backing the political parties, so it is not going to be easy to bring a change. These people out there want a nationalist leader whose loyalty is to Lebanon and not a political party.”

In an attempt to appease demonstrators, Lebanon’s finance minister, following a meeting with Prime Minister Saad Hariri, announced that they had agreed on a final budget that did not include any additional taxes or fees.


“We want everybody to join us on Sunday and also Monday to topple the government,” one protester said.

On Friday, Hariri gave a 72-hour deadline to his partners in government to agree on a solution to the country’s economic woes without imposing new taxes.

Hezbollah chief Hassan Nasrallah, whose movement is part of the government, warned on Saturday that a change in government would only worsen the situation.

The army on Saturday called on protesters to “express themselves peacefully without harming public and private property”.

What is the solution to Lebanon’s economic and political crisis?

On Saturday evening, thousands were packed for a third straight night into the Riyadh al-Solh square in central Beirut, despite security forces having used tear gas and water cannon to disperse similar crowds a day before.

Amnesty International said the security forces’ reaction was excessive, pointing out that the vast majority of protesters were peaceful.

“The intention was clearly to prevent protesters gathering – in a clear violation of the right to peaceful assembly,” it said.

Small groups of protesters have also damaged shop fronts and blocked roads by burning tyres and other obstacles.

The Internal Security Forces said 70 arrests were made on Friday on accusations of theft and arson.

But all of those held at the main police barracks were released on Saturday, the National News Agency (NNA) said.

Al Jazeera and news agencies

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Finance Officials Focus on Economy




The IMF managing director, Kristalina Georgieva, said the threat from trade wars was a chief point of discussion for finance officials.

She said the IMF has estimated that the tariffs already imposed or threatened could shave 0.8% off global growth by the end of next year. Much of that stems from the fallout on business confidence.

In trade wars, “everybody loses,” she said. “Policymakers ought to take very seriously their obligations to international cooperation in trade.”

The World Bank’s president, David Malpass, said this week’s finance discussions had focused on how to address multiple challenges.

“Growth is slowing, investment is sluggish, manufacturing activity is soft and trade is weakening,” he said. “Climate change and fragility are making poor countries more vulnerable.”

He said the World Bank was committed to helping to address these challenges to provide a better life for the 700 million people in the world living in extreme poverty.

The IMF, in an updated economic outlook, projected the global economy would expand by 3% this year, the weakest in a decade, and said 90 percent of the world was experiencing a downshift in growth. But the IMF forecast growth will accelerate slightly to 3.4% in 2020, still below the 3.6% rate in 2018.

Jubilee USA, a religious organization fighting global poverty, said in a statement that while the IMF outlined a number of serious threats, the recommendations for dealing with them fell short.

“Risky investing, trade tensions and developing countries borrowing too much are serious concerns for financial stability,” said Eric LeCompte, the group’s executive director.

While Trump’s trade policies were a prime topic of discussion at the meetings, finance officials for the most part avoided direct criticism of the American president.

Christine Lagarde, who dealt with the Trump administration during her last three years as head of the IMF, was a bit more direct in an interview to be broadcast Sunday on CBS’s “60 Minutes.”

Asked about Trump’s trade war with China, she said it would give the world’s economy “a big haircut” and should be resolved by having all parties “sit down like big men, many men in those rooms and put everything on the table, and try to deal bit by bit, piece by piece, so that we have certainty.”

On Trump’s frequent Twitter attacks on Federal Reserve Chairman Jerome Powell, Lagarde said central bankers need to be independent to do their jobs well.

“Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions,” she said.

Lagarde is scheduled to take over on Nov. 1 as the head of the European Central Bank, which manages monetary policy for the 19 countries who use the euro currency.


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