United States:
Trump’s Top Economist Sees Trade Wars Like Battle Against Scurvy
Donald Trump’s top economist has a new analogy for those bemoaning the impacts of the administration’s trade wars: Just think of the U.S. economy as an 18th century warship battling a scurvy outbreak and Trump’s tariffs and other trade weapons as the bitter lemons needed to cure it. “If you have scurvy and you don’t get vitamin C, then you are going to die,” said Kevin Hassett, chairman of the Council of Economic Advisers. “But vitamin C might not always fix you. Maybe it does. So if I give you vitamin C did I increase uncertainty? You were certain you were going to die before, but now you’re not.” His point is that the president is repairing a sick economy that has been laboring for too long under the weight of disastrous trade deals that disadvantage the U.S. against economic competitors and trading partners such as China and Mexico. But it also gets at a broader question that Trump is facing about one of his economic pillars as he heads into his 2020 re-election campaign. Voters will be wondering if the economic disruption from Trump’s trade policies will be worth it in the end, and looking for proof of their positive impact despite the evidence of mounting costs for the world’s largest economy. Hassett’s riff on scurvy was made last week in an interview with Bloomberg in the hours after the U.S. International Trade Commission released its official, independent assessment of the economic impact of the U.S.-Mexico-Canada Agreement, Trump’s replacement for the quarter-century-old Nafta. The ITC’s headline finding didn’t include the sort of numbers Trump is likely to hail at a rally. The ITC economists estimated that the USMCA would boost gross domestic product by 0.35 percent, or $68.2 billion, and create 176,000 jobs in year six after it took effect. They also had a less rosy view of what it would mean for the U.S. auto market — higher prices, lower sales and fewer vehicle production jobs. Moreover, much of the economic gain was ascribed to the removal of uncertainty caused by new rules on data flows and other regulations. Without those measures, the ITC economists found the new Nafta would actually lead to a modest 0.12 percent loss in GDP in year six.
Europe:
Coeure Sees No Need for ECB to Dilute Impact of Negative Rates
Benoit Coeure, the European Central Bank Executive Board member in charge of markets, said he doesn’t see any reason to dilute the effect of negative interest rates on banks and signaled a new long-term loan series may be less generous than the previous round. “At the current juncture, I do not see the monetary policy argument for tiering,” Coeure said in an interview with Germany’s Frankfurter Allgemeine Zeitung published on the ECB’s website Tuesday. “Those who would profit from tiering are, above all, banks with high excess liquidity, of which many are located in France and Germany where bank lending is already running high. Thus there is no evidence so far that the negative deposit rate is bad for lending. On the contrary.” Coeure acknowledged that negative interest rates — in place for almost five years — can produce harmful side effects that increase the longer the tool is used, and said their usefulness should be revisited “regularly.” Concerns focus on financial stability and rising asset prices, he was quoted as saying. While the policy also has an impact on bank profitability, they are “not the biggest problem.” The Frenchman, who is a contender to replace Mario Draghi when his term as ECB president expires in October, said he has “mixed feelings” about the health of the euro-area economy. The central bank’s latest forecasts, published in March, assume a growth pickup in the second half — a scenario Coeure said will only materialize “if there are signs of a resolution to the trade dispute.” An update will be available in June, when the ECB is also likely to announce the terms of its new lending program, the so-called TLTROs. Coeure argued that the “remarkable progress” in credit supply to companies and households will have to be taken into account in fine-tuning the measure. Under a previous plan, banks were paid as much as 0.4 percent to take up funding. “The situation today is very different to 2016, when we issued the last TLTROs to actively support lending,” Coeure said. “However, we want to protect this achievement.” Asked if conditions no longer need to be so generous, Coeure said: “The Governing Council will decide on that based on economic data.”
Asia:
Japan’s New Era Comes After Three Decades of Economic Change
Japan’s Heisei era began three decades ago with a new emperor ascending the throne near the zenith of one of the biggest stock-price bubbles in history. It’s been punctuated by the triple-hit of an earthquake, tsunami and nuclear meltdown, the fall of tech icons and the rise of automotive giants, and by creeping social change that’s seeing women and foreigners playing a bigger role in economic life. As the monarch prepares to step down this month in the midst of a radical monetary experiment to jolt the economy back on track, here is a series of charts that highlight key changes. It takes a comparison with the collapse of U.S. stocks that ushered in the Great Depression to put the magnitude of Japan’s asset-price implosion in true perspective. What’s most shocking is the failure of Japanese shares to regain their highs, even after 30 years, while the Dow surged back in the 1950s. The weakness in Japanese stocks has mirrored wider problems, which set the stage for Japan to slip to third place in the global economic pecking order. Some of Japan’s greatest corporate names have also suffered, like Sony Corp. The Tokyo-based consumer electronics champion swept all before it with products like the Walkman portable cassette player until analogue gave way to digital, and the rise of Apple Inc. and South Korea’s Samsung Electronics Co. Others including Sharp Corp. and Panasonic Corp. have seen their value slide from great heights. Yet through it all, investors around the world have turned to the yen for safety in times of crisis. Ultra-low interest rates encourage investors to borrow in Japan and put the money to work in other economies that are growing more. When risks rise, these same investors run for the exits, where they are forced to buy up yen to unwind their so-called carry trades. The country also remains a huge exporter and despite high government debt — which has risen to a whopping 230 percent of GDP during the Heisei era — corporate Japan continues to drive current account surpluses, which support the currency.
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