Blog - Views on the Economy and the World

Views on the Economy and the World

A blog by Jeffrey Frankel

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276 posts

Apology Tour d'horizon

| July 26, 2018

American presidents are supposed to take America’s side when dealing with other countries. (“My country, right or wrong.”) When Barack Obama was (falsely) accused of starting his presidency with an “apology tour” of the Middle East, it was understood that apologizing to foreigners would have been a bad thing, if true. Last week Donald Trump received a lot of criticism from both Democrats and Republicans for failing to take the side of his own intelligence services and law enforcement agencies when their findings ran counter to what his friend Vladimir Putin solemnly assured him to be the truth.

Even though US presidents are not supposed to apologize for their country, there is nothing that says that professors can’t. This column is an apology tour. The tour visits countries in alphabetical order.

Critics of President Trump’s aggressive trade policy have mostly gotten it right. His tariffs cause economic damage at home – raising the cost of living for American consumers, hurting industry, and taking foreign sales away from farmers and other exporters. Moreover the threats have been deployed erratically across trading partners and across time in ways that seem calculated to discourage cooperation with the US and rather to isolate the hitherto leader of the free world from even its closest allies.

Democrats are gearing up for the November mid-term elections, in which they hope to take back the US House of Representatives. Candidates are finding that the voters are not necessarily paying close attention to foreign affairs or even Trump scandals, and are more concerned about “pocketbook issues.” The conventional wisdom still stands: underlying the shock election of Mr Trump was the worry by the median household that it has been left behindby globalization and technological change and that the gains have been going to the rich instead.

President Trump enacted steel and aluminum tariffs in March, citing national security.  China is the intended target, as most other major suppliers were eventually exempted. On April 2, China retaliated by imposing tariffs on 128 American products (representing about $3 billion of trade), ranging from 15% on fruits to 25% on pork.  Trump April 3 announced 25% tariffs on another 1300 Chinese products [representing some $50 billion of trade], citing forced transfer of US technology and IPR. China on April 4 responded with plans for retaliatory 25% tariffs on 106 US exports -- including soybeans, autos, and airplanes -- to go into effect when the US tariffs do.  On April 5, the White House announced it was considering $100 billion of additional tariffs on China.

If these tariffs go ahead, yes, it is a trade war. How will it end?

In recent years, productivity growth in developed economies has been stagnating. The most prominent explanations of this trend involve technology. Technological progress is supposed to increase economies’ productivity and potential growth. So what’s going on?

Why has the dollar fallen since January 2017? My answer is an economic turnaround in the rest of the world. Also the level of the dollar remains rather high. But Larry Summers has a different answer.

I am honored that John Bogle has commented on my recent column,  "The February Stock Market Correction." In it I repeated my claim that 2017 saw a “bubble” in the #VIX – i.e., a market perception of low risk in US stocks that was unjustified by fundamentals – and I added that the bubble had burst in February. Bogle of course is the genius who made low-cost index #mutualfunds widely available. His comment & my reply are at Barron’s: “Bogle on Bubbles”.