Here we need to consider one scenario: a strong dollar and an American labor market with high labor demand combined with Trump's proposed fiscal plans can cause a rise in net imports in the United States in 2017, which is a boon to exporters and manufacturers of goods, for example, China , Contrary to the protectionist statements of Republicans in the course of the pre-election campaign.
This is the opinion expressed by Gabriel Stein, an experienced market analyst at Roubini Global Economics LLC. He argues that there are prerequisites for a large-scale increase in investment activity, which will face a growing deficit in America's balance of payments next year, as all three domestic participants - the public sector, households, corporations - are cutting their savings.
"The policy of the Trump administration seems to lead to the strengthening of the dollar and the widening of the current account deficit in the US balance of payments," Stein noted in his report in late December. "Some, including exporters to the United States (Canada, Eurozone, China, Korea), as well as exporters of oil and commodities, will benefit more or less."
Stein comes to this conclusion on the basis of what is known as the sectoral financial balance. Simply put, national current accounts reflect the interaction between savings and investment; The amount of accumulated funds in the economy equals the amount invested, according to the accounts. If corporations in America, for example, invest, and neither households nor public sectors increase their amount of savings to the appropriate level, by definition, the current account balance can go into a negative field, mirroring the growth of net inflows of savings from abroad.
The view that the government influences savings and investment balances of households, companies and foreign trading partners was central to economies with trade deficits during the discussion of austerity measures following the 2008 financial crisis. Supporters of this approach argued that the private sector's desire to increase its net saving rates caused the need for an appropriate budget deficit in order to compensate for the incentive for the private sector to save money, which was an effective solution to the frugality paradox.
Moving forward in 2017: there is a new question for economists. How can an increase in the US budget deficit affect the incentive for the US private sector to save money and how will this affect global aggregate demand?
"Expansion of the state deficit should cause an increase in net financial balances in the non-state sector, private and foreign sectors," says Naufal Sanaullah, trader and founder of the MacroBeat website. "If Trump does not create significant barriers to trade, part of the increased public deficit may flow into higher foreign net financial balances, which is equivalent to increasing the current account deficit in the United States, and the rest will serve to fill the balance sheets of the private sector."
Next year, Stein expects a slight increase in demand for imports in the United States, caused by an optimistic forecast for the investment cycle in the public and private sectors.
Next year, he expects a decline in the financial growth of the corporate sector, which was 1.9 percent of GDP in the third quarter, taking into account support at the level of fiscal stimulus and plans for reforming the tax system. In addition, it appears that household balance sheets will also decline, amounting to 0.7 percent of GDP; This is due to the fact that expectations for greater growth and increased borrowing will fix low interest rates, according to an analyst at Roubini Global Economics, who first raised this issue in a report last November.
Therefore, taking into account the fact that in 2017 all three domestic sectors will reduce the amount of their savings, the deficit of the current account of the US will increase, concludes Stein.
Even without financial changes, there is evidence that US economic activity can cause an increase in external aggregate demand next year. "We have a stable labor market, and we have a sustainable economy," said Janet Yellen, chairman of the Federal Reserve Bank, following a decision in December to raise interest rates, suggesting that the US economy can provide full employment In the absence of fiscal incentives.
A strengthened labor market can, therefore, eventually reach a level at which it will stimulate companies to increase production and investment. At the same time, the trend towards higher wages in the light of a weakening economy would cause an increase in the US purchasing power of $ 13 billion and, in theory, give a positive impetus to demand in the rest of the world as an increase in imports.
But all this depends on the forecast for free trade. "I do not think that we will see a sharp increase caused by the flow of funds through the current account channel, if trade will not remain open and tax cuts and creation of fixed monetary investments for consumption of import volume will not be applied," Sanaullah said.
And then, there is a dollar supported by Trump's victory in the elections. Although the sudden and rapid growth of the dollar in mid-2014 was not accompanied by a real increase in the volume of US imports, this time the situation may be different. Since the election, the real effective exchange rate - a weighted trade-weighted dollar against the basket of other major currencies - has grown by 4.6 percent, and Barclays Bank Plc says it is a sharp increase in seven weeks. Therefore, the stability caused by the dollar can change the forecast for trade: a 10 percent change in the exchange rate is associated with a trade balance change of about 1.5 percent of GDP, according to the IMF.
"Trade discussions often tend to be focused on trade policy, rather than on actual trade flows," Brad Setser, a senior expert at the Council on Foreign Relations, said in a blog post last month. From New York. "But it is the trade flows-and the trade deficit-that are important for the total number of jobs in the competitive goods sector, and changes in the value of the currency have a big impact on the level of export volumes and, thus, on the size of the trade deficit."
The growth of the US trade deficit will continue to fuel the loud demands in the Trump administration to follow protectionist policies. Still, the general view is that a real shift in the deficit is still unlikely. The deficit of current US balance of payments items in the next two years is unlikely to change; In 2017 it will remain at the level of 2016 in 2.6 percent of GDP and will reach 2.8 percent in 2018, according to the averaged forecasts in the survey of Bloomberg.
Legislative obstacles to extensive structural and financial reforms can be the main reason for analysts' caution, as well as difficulties in determining the direction of economic development in 2017, from the real dollar level to the trends in imports.
"We really can not know what impact Trump will have on the trade balance. I believe that he is going to cut gross flows, but the impact on the balance sheet is not direct, "said George Pearkes, who deals with strategic macroeconomic issues at the Bespoke Investment Group, and points out the difficulty of predicting final values for savings and investment flows.
One thing is clear: the world actually needs a sharp increase in the current account deficit in the balance of payments of the United States. The trend of increasing the dollar complicates international financial conditions and reduces demand in emerging markets due to insufficient liquidity.
"A strong dollar is already stifling the global economy, and therefore further strengthening will only add strain and weaken the growth of global aggregate demand," said David Beckworth, a researcher at the Mercatus Center at George Mason University in Arlington, Virginia.
Therefore, the inability of the US to increase imports in 2017 will have a strong impact on the global economy, an analyst at Macquarie Group Ltd., headed by Viktor Shvets, concludes in a report released late December.
https://www.bloomberg.com/news/articles/2016-12-22/how-trump-could-accidentally-fuel-a-global-trade-boom
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