The US/China trade war doesn’t seem to have caused a lot of pain for US consumers, but after 117 months of expansion, compared with the average of 48, the US economy may be due for a setback that will be linked to the dispute, said two economists writing for Project Syndicate and reported in Seeking Alpha.
Andrew Sheng, distinguished fellow of the Asia Global Institute at the University of Hong Kong, and Xiao Geng, president of the Hong Kong Institute for International Finance, didn’t mince words when they said, “the US could soon find itself thrown back into a painful recession, owing to disruptions caused by its own trade policy.”
Some market analysts have said for some time that these trade negotiations could drag on for some time as the two largest world economies duke it out around the conference table.
THE US AT FAULT?
Sheng and Geng said the fight could be long because the US public has yet to feel the pain of President Trump’s trade policies.
The pair said China only recently began to appreciate fully the significance of President Trump’s “America First” doctrine, which they said US State Department Policy Director Kiron Skinner said rests on four pillars: national sovereignty, reciprocity, burden-sharing and regional partnerships.
The economists said the Trump administration often takes reciprocity too far, weakening America’s capacity to build and maintain partnerships, regional or otherwise.
“Under Trump, the US has undercut the interests of its closest allies for its own narrow benefit,” they said.
The Project Syndicate article said the active ingredient in the Trump doctrine is burden sharing. It said Skinner interpreted this to mean America’s NATO allies needed to increase their defense spending.
However, what Skinner does not acknowledge is that the US also is forcing the rest of the world to share the burden of its unsustainable deficits, they said. The US consistently runs a fiscal deficit, with total expenditures significantly exceeding its income, and a current-account deficit.
“If those twin deficits run at a trend rate of over 3% of GDP per annum, net US debt to the rest of the world, currently at 40% of GDP, will double in less than 24 years,” they said.
And, even if China eliminated the bilateral deficit with the US, the US’ imbalance of saving and investment would merely shift toward other surplus economies, like the EU, Japan and South Korea.
Since the US started running structural deficits in the 1970s, there has been a kind of global “grand bargain” on the topic, Geng and Sheng said. The world willingly finances America’s current-account deficit in US dollars; in exchange, the US acts as a guarantor of free trade and global security.
The Trump doctrine upends that bargain. By weaponizing America’s economic leverage (including the US dollar), it aims to force the world to uphold its end, with no guarantee that the US will respond in kind.
CATTLE, BEEF RECAP
Cash cattle trading was reported this week in the Plains at $115 to $117 per cwt on a live basis, steady to up $1 from last week. Dressed-basis trading was reported at $186 per cwt, steady to up $1 from last week.
The USDA choice cutout Thursday was up $0.05 per cwt at $223.58, while select was down $1.12 at $208.87. The choice/select spread widened to $14.71 from $13.54 with 102 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $135.00 per cwt, down $1.64 from the previous day. This compares with Thursday’s Aug contract settlement of $138.22, down $4.50.