Maybe Trump Admin's Intent is to Leave the WTO

♠ Posted by Emmanuel in at 3/07/2018 04:24:00 PM
It may be an American farewell to the WTO building on the shores of Lake Geneva real soon.
As I've written in a previous post, it is unlikely that the United States will win a case against its proposed tariffs on imported steel (Trump mentions 25%) and aluminum (10%) if one is brought by the affected exporting countries. While there is a clause as I've also mentioned for applying such tariffs if the nebulous "national security" reason is invoked, [a] there is no real precedent for doing so and [b] it's unlikely to be sustained since American defense industries only represent 3% of steel demand.

But, consider this: What if Trump is going into this fully knowing that he will be ruled against? This could be a political ploy that works in favor of his "war on globalists" Bannonite shtick. If the WTO is "against America" as a losing ruling would indicate, then why not just leave altogether? That's how MarketWatch's Greg Robb sees how things may pan out:
There is concern among trade experts that President Donald Trump’s plan to impose tariffs on foreign steel and aluminum may eventually give the administration an excuse to walk out of the World Trade Organization entirely.

It is not difficult to sketch out a scenario where the Trump administration would just say “that’s it, we are leaving,” said Jennifer Hillman, a fellow at the Institute of International Economic Law at Georgetown University, on a conference call with reporters sponsored by the Atlantic Council. Trump is planning to justify the sweeping tariffs on the grounds that the foreign imports threaten national security.

Foreign government are likely to quickly go to the WTO and ask that the tariffs be ruled illegal. Hillman said the U.S. may counter by saying it was taking the action under Article 21 of the General Agreement on Tariffs and Trade, which Hillman called the untested “third rail” of trade laws. Essentially, the article says that some binding tariff agreements can be broken during wartime.
That is, a "biased" losing ruling--which is the generally expected outcome--would be the pretense to end American participation at the WTO:
The WTO panel might rule anyway, setting up a standoff. This suggests to some that the whole reason to go down the national security route is really to create a crisis so the U.S. can withdraw from the WTO, Hillman said.
It was previously unthinkable that something like this could happen since the Americans of old came up with the entire idea of a WTO. With Trump, the impossible has a way of becoming the probable. Let's see if the Republicans can rein in their "rogue" president as times have changed...and we haven't even gotten around to talking about the fate of NAFTA yet.

Tariff Terrorist Trump, Meet Tariff-Cutting Congress

♠ Posted by Emmanuel in at 3/05/2018 11:30:00 AM
Yay! Cheaper GAP vest soon care of...American politicians?
I will soon have (rather lots) more to say about the upcoming Trump tariffs on steel and aluminum. Since the US Trade Representative has not yet finalized the terms as to whether some countries or US domestic industries buying from abroad are exempt among other details, there is still some uncertainty about their ultimate form. That is, the full extent of the economic terror Trump will unleash on global markets is still up in the air.

In the meantime, though, consider this: the American congress is considering legislation that will cut tariffs on a grab-bag of imported goods currently falling under the miscellaneous tariff bill. So, it's like a push-pull set of messages from the American executive and legislature that's got us foreigners rather confused. A handful of protectionist US lawmakers still want to keep it largely intact, though:
Even as President Trump threatens to slap protective tariffs on steel and aluminum, lawmakers are moving forward with legislation to lower trade barriers on hundreds of other products, from chemicals to toasters, in a bid to lower costs for U.S. companies and consumers.

Supporters of the so-called miscellaneous tariff bill, which unanimously passed the House of Representatives in January, say it would boost the economy by getting rid of tariffs designed to protect U.S. industries that no longer exist. The National Association of Manufacturers says U.S. companies pay hundreds of millions of dollars each year on unnecessary import fees.

Critics say that miscellaneous tariff bills, which began decades ago as modest efforts to help U.S. manufacturers, have in recent years become sprawling packages of tariff reductions that undercut domestic producers without the means to defend their interests in Washington.

Ohio Senator Sherrod Brown, a Democrat who worked to get several products removed from the current bill, said Congress should do a better job to ensure tariff reductions do not impede U.S. producers. “Miscellaneous Tariff Bills should help, not hurt American manufacturers,” Brown said in a statement to Reuters.
The original bill is said to have become severely distorted. Intended to lower the cost of importing intermediate goods American manufacturers purchase from abroad, it's since become a sprawling bit of legislation covering more of finished articles:
Miscellaneous tariff bills were originally conceived in the 1980s as a way of lowering costs for U.S. manufacturers that could not get chemicals and other component products from domestic sources. The original point of the efforts“was to encourage domestic manufacturing,” recalls Jennifer Hillman, who worked on the legislation as a Senate staffer in the 1980s and 1990s.

All but two of the 163 items in a 1999 version of the bill, for example, were used in the manufacturing process, according to a House Ways and Means Committee report. Since then, Congress has broadened successive tariff bills to include many finished products that can go straight to store shelves.

Only 55 percent of the items in the current bill are“intermediate goods” used in manufacturing, according to applications filed with the International Trade Commission. Many of the rest are finished consumer products. 
The apparent disjoint between Trumpian protectionism and the apparently more favorable trade outlook of American lawmakers does reflect wider societal conflicts over the desirability of free trade. Even within the Republican party alone, there is a pronounced difference of opinion. Meanwhile, those of us in the rest of the world will have to learn the nuances of US political economy to come up with an informed view of how this key trading nation treats the issue.

Trump Escalates Trade War: Steel & Aluminum

♠ Posted by Emmanuel at 3/01/2018 07:07:00 PM
If Trump goes down, he's decided to take the world economy with him.
It's no secret that the Trump administration is besieged on all sides now. As White House staffers flee or begin to leave Trump's sinking ship while it takes fire from every conceivable direction, Trump has decided to make a distraction he believes will distract public attention. While hosting American steel executives today, he went against the wisdom of his saner (read: non-white nationalist, non-xenophobic, non-protectionist) advisers. It's the Trump equivalent of damn the torpedoes as far as economic matters are concerned as cooler heads have definitely not prevailed:
President Trump on Thursday said he had decided to impose punishing tariffs on imported steel and aluminum in a major escalation of his trade offensive, disappointing Republican congressional leaders and inviting retaliation by U.S. trading partners.

Speaking at the White House, the president said he had decided on tariffs of 25 percent for foreign-made steel and 10 percent for aluminum. “We’ll be signing it next week. And you’ll have protection for a long time in a while,” the president said. “You’ll have to regrow your industries, that’s all I’m asking.”
While tariffs on steel applied by the United States are fairly common, the stated reasons this time around raise a lot of eyebrows--especially among American trade partners that will be affected. The 2002 tariffs George W. Bush was "conventional" in invoking what are known as "safeguards" in the event of a sudden surge of imports that threatens domestic industry. Ultimately, the United States backed down after two years. Not only did other countries make a WTO case against America, but they won by demonstrating that there was no sudden, sharp increase in America's steel exports. Quite the opposite, in fact.

Probably to get around this line of response by other countries, the United States is now citing that all-purpose chestnut, "national security." While there is a WTO clause concerning when such justifications are valid, it is most likely not going to be considered as such with America's current case. Simply put, it is highly dubious claim that longstanding purchases by US manufacturers of foreign-made steel threaten to undermine US security. Is the situation different now compared to before Trump and his protectionist lackeys? For instance, have foreign producers begun sell the US substandard steel to undermine American safety for use in infrastructure, automobile manufacture and so on? I don't think so.
The president’s move, relying upon a little-used provision of U.S. trade law, is expected to trigger immediate legal challenges by U.S. trading partners at the World Trade Organization and invite retaliation against American exports.

Trump also turned back pleas from companies that are heavy users of steel and aluminum, including automakers, who warn that higher prices will hurt their sales and potentially lead to layoffs. In 2002, the last time the United States imposed steel tariffs, steel users blamed the measures for the loss of up to 200,000 jobs.
The likely near-term responses of the others will probably include retaliatory, tit-for-tat tariffs on products which the US exports to them. In the medium term, the affected countries will probably file another multi-country case at the WTO arguing precisely what I've suggested. That is, "national security" justifications as offered by the Trump administration are inadmissible at the WTO dispute settlement mechanism.

Also, expect China to be more proactive this time around. More often than not, it's been at the receiving end of the US filing WTO cases against it. With Trump going bonkers, it needs to make a stand sometime lest it be hit with other protectionist measures:
On Thursday, China’s Foreign Ministry repeated its government’s objections. “The United States is disregarding the rules of the WTO, and China is dissatisfied with this,” spokeswoman Hua Chunying told a regular news conference. She said such measures would affect employment in the United States and affect the interests of the United States’ consumers. “As for the actions of the United States, China will take proper measures to safeguard its legitimate rights and interests.”
Why are Trump steel tariffs made on dubious grounds worse than George W. Bush ones? My view is as stated above: Trump's are made on justifications that are several magnitudes flimsier and won't withstand scrutiny. I predict a rough patch for world trade over the next few months; that much is obvious. However, I also predict that a WTO complaint filed at the WTO against the United States has an even higher chance of succeeding than the earlier (unfavorable) ruling on the Bush steel tariffs. It is then that the US will have to decide--if we get there--whether to withdraw support altogether for an institution it's been the main proponent of all these years. Now that would really set world trade afire. 

However, the rather more likely possibility is that even the Trump administration will back down as pressure from various constituencies and their lawmakers mounts. Remember, there are far more US-based customers of imported steel than there are American steelmakers. My belief is that Trump's trade action is an act of economic desperation as he is under political siege. Ironically, it is the American and, most likely, the wider world economy that will have to suffer the consequences of this vainglorious jackass's attempt to distract from the chaos surrounding the American executive branch..

Aramco IPO: Why Saudis Turned Oil Price Hawks

♠ Posted by Emmanuel in , at 2/25/2018 11:32:00 AM

There's a neat story from the folks over at Oil Price about how the Saudis have done an about-face on the price of traded oil. For the longest time, they were considered as being among the least "activist" in the commodity cartel OPEC [Organization of Oil Producing and Exporting Countries]. That is, they did not push for boosting oil prices by crimping production of OPEC member countries. In recent years, though, that has changed as they've turned from "doves" content with a lower price of oil to "hawks" seeking to increase this price.

The proximate cause of this apparent change of heart is the imminent initial public offering [IPO] of Saudi Aramco, the state-owned energy behemoth. Many of the specifics of that listing are not yet known: where the listing is to be made and how much of the company is to be floated:
Saudi Arabia is undergoing a truly seismic shift in its economy, politics, and society, all thanks to the oil price crash of 2014. Crown Prince Mohammed bin Salman, commonly referred to as MBS, would likely not have had the opportunity to initiate the sweeping changes envisaged in Vision 2030 had it not been for the price collapse. Now, Riyadh needs oil prices to rise as high as possible for the plan to succeed — and is even ready to tip the market into a deficit to that end.

Saudi Arabia used to be OPEC’s most influential price dove, according to Bloomberg’s Grant Smith. Now, the kingdom has adopted a markedly different approach. Saudi Arabia is now focused on pushing prices as high as it can for a very simple reason: Aramco’s IPO.
The change is rather dramatic. Consider the changing stances of Saudi Arabia and its ideological arch-rival within OPEC, Iran:
When oil surged to almost $150 in 2008, attempts by Saudi Oil Minister Ali al-Naimi to cool the rally also faced opposition from other OPEC nations eager to enjoy soaring revenues. Prices slumped the following year during the Great Recession.

The dynamic is showing some signs of reversing. After Brent crude shot above $70 in late January, Oil Minister Bijan Namdar Zanganeh of Iran -- an OPEC producer that often used to agitate for higher prices -- said that $60 was sufficient.

Emboldened by the success of their strategy so far, the Saudis are now pursuing price levels that will ultimately lead to failure, said Eugen Weinberg, head of commodity market research at Commerzbank AG in Frankfurt.
If the listing of Saudi Aramco is the proximate cause, the longer-term one is rather more interesting and less obvious. Vision 2030 is mentioned and refers in no small part to the post-fossil fuel plan that Saudi Arabia has which obviously has the potential to upend its longstanding fuel-driven political economy. You see, proceeds from the IPO of Saudi Aramco are expected to fund the implementation of Vision 2030. If you are going to undertake fairly drastic economy- and society-wide changes, you would obviously be better of doing them under favorable economic conditions (read: high oil prices in the near future).

So, the inescapable implication here is that to successfully transition to a post-fossil fuel future, Saudi Arabia would benefit from higher energy revenues at the present time to fund Vision 2030. Strange but true:
Aramco’s IPO is crucial for Vision 2030, as the proceeds from the sale will be the fuel that this ambitious plan runs on. While analysts disagree strongly on exactly how much Aramco is worth, it’s clear that the higher oil prices are, the higher the valuation for this oil giant will be.
Pulling off Vision 2030's ambitious objectives is by no means guaranteed. Ironically, though, successfully weaning the kingdom off oil is more likely when oil prices are high rather than when they are low as Saudi Aramco is being listed as a "legacy" business--albeit a behemoth on the world energy stage.

Can Trump Delay Non-White Majority America?

♠ Posted by Emmanuel in at 2/21/2018 05:56:00 PM
Few intellectually honest observers would dispute that Donald Trump's election was based in no small part on channeling white ethno-nationalist fears. More specifically, the United States is expected to become a non-white majority country mid-century. Estimates vary, but it's estimated to happen possibly in 2044 at the earliest. Trump's unapologetically racist tirades and policies against Mexicans, Muslims and other non-white and/or non-Christian people appeal to precisely this white ethno-nationalist base fearful of non-white majority America.

A recent New York Times op-ed puts it in simpler terms: Trump wants to Make America White Again, or turn back the clock to an earlier time when the colored people knew their (subordinate) place in (white-dominated) American society. You know, the good ol' days for the good ol' boys:
The White House is assertively working to make America white again, and Democrats are too afraid to speak that truth. The aggressive pace of deportations of immigrants of color, the elimination of the DACA program protecting immigrant children and the proposals propounded by the anti-immigration voices in the administration will all have the undeniable effect of slowing the rapid racial diversification of the United States population.
But how much can Trump really change demographic forces in the making for decades upon decades? The answer is the economist's "only on the margin." The Washington Post's analysis is similar to most in that it's like trying to hold back a waterfall. Or, in numerical terms, five measly years at most. Factor in the lowered annual intake if Trump and the restrictionists got their way:
The Post analyzed a low-end and high-end estimate for cuts to legal immigration under the Trump plan. The low-end estimate, provided by NumbersUSA, a group that favors limiting immigration, suggests that about 300,000 fewer immigrants will be admitted legally on an annual basis. A high-end estimate from the Cato Institute, which favors immigration, suggests that as many as 500,000 fewer immigrants would be admitted. Cato bases its number, in part, on assumptions that more family visa categories will be cut.
It doesn't sound like much of a delay, and it has more to do with domestic demographic trends (births/deaths among whites/non-white citizens) than it does with the in-migration of non-whites. 

(Disappearing) American Mall, the Video Game

♠ Posted by Emmanuel in at 2/18/2018 01:48:00 PM

Like (I hope) the IPE Zone blog itself, there's an amusingly droll American Mall video game developed by, of all people, Bloomberg. With consumer spending constituting the lion's share of economic output in most countries, the fate of the shopping mall format is of considerable political-economic interest. The anchor department store...the food court...the originators of these retail concepts are American through and through. Having created it, the Americans are now at the cutting edge of retail evolution in moving away from the mall in a big way. What will it hold for retail in other countries?

It's hard to tell what will happen elsewhere. Among other things, there's less of a glut of retail floor space in other countries as well as the emergence of the mall as something more than a "shopping" destination. For instance, in the highly Catholic Philippines, its largest mall features regular church services.

At any rate, enjoy the video game. It's even developed something of a following online:
Average gamers are playing about 4 minutes per session, though it’s topped one hour for some. And, for now, this is the only game in town for, but it is its most ambitious storytelling to date. (The site built The Trading Game, about picking stocks, two years ago.) The highest scorers are those who keep the mall open the longest, as of this writing more than 2,000 days. 

China's (Stock) Plunge Protection Team Rides Again

♠ Posted by Emmanuel in at 2/12/2018 02:16:00 PM
When the guy on the left is on the loose in stock markets, you need the guy on the right. Right?
Well this is rich: The People's Republic of China has been fighting the United States and the European Union at the World Trade Organization over still being designated as a "non-market economy," implying that state intervention matters a lot more in the PRC relative to allowing market forces to work things out. At the same time, Chinese officialdom appears to be doing all sorts of actions that contradict laissez-faire economic governance necessary to improve its designation.

Just as the recent US-led stock crash has laid low stock markets around the world, Chinese powers-that-be have mounted an aggressive defense of PRC-listed stocks. Demonstrating rather "non-market economy" phenomena, it's been "encouraging" [read: do it or suffer all sorts of consequences] large shareholders to buoy their stock holdings:
An affiliate of China’s securities regulator on Monday encouraged major shareholders of domestically-listed firms to increase their holdings, after Chinese stocks were mauled in a global sell-off last week.

The call represents the clearest signal yet from the Chinese government to lend support to a market rocked by recent global volatility, China’s deleveraging campaign and fears of margin calls. It also stirs memories of government intervention during China’s 2015 stock market crash, when companies were also urged to buy shares and state-backed funds were pumped into the market.

China Securities Investor Services Center, directly managed by the China Securities Regulatory Commission (CSRC), said in an emailed statement that share purchases by major shareholders could help stabilize the market and shows big shareholders stick with retail investors “through thick and thin”.
Hence, China's equivalent of the plunge protection team rides again. The ploy is designed to boost confidence among mom-and-pop investors riding through a fairly turbulent patch at the moment:
Such a practice would “bring confidence to small investors, and have a positive impact” on the market, the center said, encouraging major shareholders and senior executives of listed companies to increase shares if they have not yet done so. Chinese stocks fell nearly 10 percent last week, the worst weekly performance in two years as investors dumped shares across the board.
China's leadership is very keen on appearances, so it's no surprise that the last time their plunge protection was at it was during last year's run-up to the Communist Party Congress.

These guys run a "non-market economy." Nuff said.

UPDATE: Note that the media designation of those buoying PRC stocks in actually the "national team" as opposed to the American "plunge protection team." Regardless, the objective for either is the same. 

Canada's Trudeau: To Save NAFTA, Avoid Trump

♠ Posted by Emmanuel in , at 2/12/2018 01:57:00 PM
Trudeau's ploy to save NAFTA consists of going around Trump.
If there ever was a misleadingly titled article, consider this one from Bloomberg on Canadian PM Justin Trudeau seeing a "clear path forward" on NAFTA. You see, the path he's taken is to largely bypass the Americans actually responsible for (re)negotiating trade deals, namely Trump and his trade representative Robert Lighthizer. Instead, Trudeau has taken his case directly to [a] representatives whose constituents will lose out from NAFTA's demise and [b] companies presumably with strong lobbying arms who would also be negatively affected:
Trudeau’s government has been attempting to win support from U.S. lawmakers and businesses to keep Trump from pulling out of the North American Free Trade Agreement, as he’s repeatedly threatened to do. Canadian efforts also come amid signs U.S. Trade Representative Robert Lighthizer is growing more frustrated with the country.

“There is a clear path forward and we’re working very hard together on that path,” Trudeau said Saturday in Los Angeles. He spoke alongside Mayor Eric Garcetti, one of many prominent Democrats he met with. Canada wants to “ensure that we can move forward in a way that is a win-win for all of us.”

Garcetti hailed Canadian investment in his city and said Trudeau’s trip was well-received. “This is deeply important work the prime minister is doing.”
Canada's NAFTA game plan was already spelled out sometime ago. If anything, this is not a "clear path forward" for a number of reasons. First, as I've mentioned, Trudeau's path appears more circuitous than direct through bypassing the formal counterparties to the NAFTA re(negotiations)--Trump, Lighthizer, and others in the executive branch. So, he's trying to raise support in a roundabout manner even if you can argue that Trudeau is actually appealing to those with a greater stake here--namely, NAFTA-participating regions and companies.

Second, despite me and many other trade commentators believing that only the US Congress can undo NAFTA having put in into effect, there is no guarantee that [i] Trump will not try to get out of the deal single-handedly if talks do not yield progress and [ii] Congress can successfully overrule Trump if he does announce the US is leaving NAFTA.

Trudeau acknowledges as much. From his Grand Tour of America:
At the University of Chicago on Feb. 7, Trudeau said he was “legitimately concerned about the future of Nafta...” Friday in Los Angeles, Trudeau warned he didn’t “think anyone can now entirely predict or understand” the impacts on the three countries if Nafta were to end.
To be fair, Trudeau's administration has just filed an unprecedented Pretty Much Everyone Else vs. USA case at the WTO that has soured trade relations between the two countries. For WTO cases, you typically argue for your own trade interests, not for everyone's against some big, bad country. If Trump's trade negotiators like inserting "poison pills" during ongoing NAFTA talks, then Canada's shoving some pretty unsavory stuff down US throats, too, at the WTO.

Ultimately, I don't think Trudeau buys that the path forward is clear, either.

Will Trump Ramp Up Trade War Post-Stock Crash?

♠ Posted by Emmanuel in , at 2/07/2018 03:45:00 PM
Being a disordered personality of the first order, Trump has acted as a cheereleader for both rising stock valuations and trade protectionism despite the latter being anathema to the former in the opinion of most conventional businesspersons. Insofar as American businesses with operations abroad favor a relatively open and predictable environment for international trade, further moves Trump makes to antagonize the United States' trade partners may make stocks drop even further than they have in recent days.

Speaking of which, Trump's minders (babysitters for us critics) have been able to hold protectionist policies--if not necessarily rhetoric--in check by precisely making the argument that outsized stock market gains until relatively recently have been made possible by not erecting more trade barriers. The problem is that with the stock market now tanking, it is harder to make the argument that rising stock markets and trade openness go together. Axios' Jonathan Swan writes:
  • One of the strongest arguments Gary Cohn and Steven Mnuchin have been making to Trump to persuade him not to blow up NAFTA or take hardline protectionist trade actions is 'Mr. President, the economy is booming and the stock market is setting records under your leadership. Why would you risk that with these trade actions?'"
  • "My question: if they no longer have that argument, what else do they have in their quivers to persuade Trump not to follow his most hardline instincts on trade?
Also keep in mind that, in contrast to Trump's campaign promises to reduce to the US trade deficit, it's been exploding as of late, and we can only expect it to rise further due to recent tax cuts passed that will further increase the US budget deficit and put even greater upward pressure on the external deficit:
The U.S. trade deficit jumped to the highest level in nine years, according to a Department of Commerce report on Tuesday. Despite President Donald Trump’s repeated promise to shrink trade deficits, it rose 12.1% to $566 billion during his first year in office and leaped 5.1% in December alone. 

And this may be just the beginning of an upward trend following Trump’s tax cuts, according to economists. Derek Scissors, resident scholar at American Enterprise Institute calculates the tax cuts may boost the trade deficit by $200 billion. A BofA Merrill Lynch Global Research report also expects the share of the trade deficit in GDP to grow 0.2 percentage points by 2020.
So, if Trump no longer buys the argument that stock market will do well because of avoiding trade protectionism that upsets the status quo, what happens? It might set the stage for more protectionism over the coming months:
The Trump administration is working on trade measures that will make the recent tariffs on solar panels and washing machines look minor by comparison. At best, these potential measures could protect the U.S. from unfair foreign competition. At worst, they could ignite trade wars that end up harming everyone.

China in particular is in Trump’s crosshairs and might well fight back against any effort to restrict its exports. “I have been told by certain officials that yes, definitely, there will be retaliation” from China if the U.S. slaps new tariffs on Chinese-made products, William Zarit, chairman of the American Chamber of Commerce in China, said at a briefing in Beijing on Jan. 30.
Couple a falling stock market with a soaring trade deficit under Trump and, however misguided his ideas are about their causes, expect the blustering fellow to make even harder moves against trade openness through China-aimed sanctions and the like.

Watch Out: 2018's World Economy Resembles 2007’s

♠ Posted by Emmanuel in at 1/27/2018 04:59:00 PM

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing - Former Citibank CEO Charles Prince (2007)

At Davos, Barclays CEO Jes Staley expressed something that's been on my mind as of late: the world economy circa early 2018 sure looks a lot like the pre-subprime crisis / global financial crisis one. I'd even go one step further with this comparison: instead of looking like 2006, the world economy looks more like that closer to the eve of that cataclysmic event of a decade ago. Prior to the aforesaid event, there was some doubt as to whether a United States whose share of global economic activity is declining still mattered. After a localized problem in the US housing industry eventually led to problems in the broader world economy, this debate is a largely settled one: America still matters.

In this light, let us consider how the United States is doing at the current time and what its economic conditions mean for the rest of the world economy.  From the exuberance exhibited by many market participants, things are going swimmingly and may do so for the next 11 years or so. Like Charles Prince in 2007, people are in full party mode in 2018. Dance, dance, dance. It's a "nonstop euphoric cabaret." Have things improved significantly since then in its largest economy? And, have global economic imbalances righted themselves since then as to no longer pose a threat? The subtitle of this blog aside, I have strong doubts. Let us consider eight indications that matters haven't really improved:

I. A High and Rising Budget Deficit

Before Trump's election, forecasts for the United States' fiscal situation were already looking dire due to foregoing health and pensions obligations of an aging society (the so-called "mandatory" spending). Although some debate surrounds whether or not Trump's recently-passed tax cuts will boost economic growth--I have strong misgivings--the consensus is that it will only increase the United States' debt pile.

Actually, the 2001 and 2003 Bush-era tax cuts were made at a time when the US fiscal outlook was not as dire. From 1998 to 2001, the Clinton-era budget surpluses suggested that the country could begin reducing its national debt going forward, but we know what's happened since then. The difference with the Trump-era legislation is not so much its content--more of (unfunded) tax cuts absent tax reform--but its timing. Amid a worsening fiscal picture instead of an improved one largely inherited by George W. Bush, the Republican Party made a bad situation worse.

II. A High and Rising External Deficit

Dick Cheney famously said that "deficits don't matter." Despite alluding that these deficits do matter during his inaugural address, Trump has actually not done anything substantial to correct these deficits. (Starting trade wars doesn't count.) With regard to America's external deficit, it's actually become worse under Trump. Even if he continually bemoans how little the US exports relative to what it imports, they're, er, doing even more of the latter as of late.

In part, it's due to Trump not having any grasp of basic international economics. By worsening the United States' fiscal position, further government dissavings should, all else equal, result in a widening current account deficit. The most recent US trade deficit illustrates this phenomenon neatly. It's been rising as of late, with the goods deficit reaching $70B in November 2017 and a towering $71.6B in December 2017. From 2005 to 2008, the United States ran trade deficits larger than $700B annually, including services. To be fair, the US is running larger services surpluses nowadays than in 2005-2008. Even if the overall trade deficit is smaller relative to GDP as a result, the overall trajectory is the same: onward and upwards.

III. A Plummeting Dollar

Can you believe that Bush 42 officials actually stuck to "strong dollar" policy shtick? The combination of high and rising budget and external deficits would have been consistent with a weaker dollar, and that's what actually happened way back when the Euro reached higher than $1.50. Nowadays, of course, America's finance guy doesn't even bother with the pretense of having a "strong dollar" policy. Still, rhetoric matters less than actual policy, and the same dollar-toxic combination is very much in evidence.

Just as in 2008, the dollar is going where economic theory suggests it should--downwards. (Note that others also highlight increased global capital flows as a reason for dollar weakness. That the dollar strengthened in the wake of the global financial crisis is consistent with this interpretation.)

IV. A Rising Oil Price 

Since oil is denominated in dollars, demand for its should increase as the currency depreciates and others can buy more of the stuff for less with their respective currencies. The average price of a barrel of oil averaged over $100 in 2008; this time frame is one of continually rising oil prices as well vis-a-vis a plummeting dollar. It's not so much that high oil prices "caused" a global financial crisis, it's that it fits in with the current pattern of the world economy circa early 2018. That is, commodity prices are being buoyed by a weak greenback.

V. A Soaring Stock Market

Many adopted a sanguine outlook on asset valuations--like equity shares--during a time when the United States had the aforementioned high and rising twin deficits as well as a weak dollar. The premise of this exuberance largely resembles that of a decade ago. In fact, the then-US Treasury secretary cited global conditions that were better than ever right before things headed south:
Just how red-hot is the current worldwide expansion? "This is far and away the strongest global economy I've seen in my business lifetime," U.S. Treasury Secretary Hank Paulson declared on a recent visit to Fortune's offices [July 12, 2007; my emphases].
Maybe deficits don't matter. Maybe economic fundamentals don't matter, either. Just be mindful though of when folks were last saying the same sorts of things.

VI. A Movement Towards Financial Market Deregulation

Despite savaging bankers during his campaign, Trump has been as friendly to banks as you could possibly imagine, from cutting their taxes drastically to beginning to roll back crisis-era regulations meant to lower the possibility of another global financial crisis. With the pro-regulation Janet Yellen out of the way, the stage is set for further rollbacks on regulations set by the Federal Reserve.

VII. Dissavings-Fueled Household Consumption
In a truly "healthy" economy, additional household spending is funded by additional earnings. People spend more because they earn more. However, what if much of this spending is the result of dissavings? Obviously, there is an ultimate floor here since folks cannot deplete their savings forever to spend. In the run-up to the crisis, household savings were razor-thin, even becoming negative during some months. Is the story any different in 2018? I am afraid that it's not. The savings rate Stateside has just fallen to its third-lowest on record:
Overall, economic growth climbed by 2.6 percent on a quarterly basis at the end of 2018, data released Friday showed. The expansion was driven in large part by personal consumption, which picked up substantially in the fourth quarter -- a move that came as the savings rate slumped to 2.6 percent as a share of disposable income, its third-lowest on record.
Around 70% of American GDP is composed of consumer spending. If increases in consumer spending as of late have been driven by dissavings--other commentators note that the amount of increases in consumer spending has been approximately matched by falls in savings--then household consumption will inevitably fall back absent real income growth to continue elevated spending levels.

VIII. Growing Household Indebtedness

The last piece of the puzzle is overall household indebtedness. To no one's surprise, the United States' total household debt has eclipsed its pre-financial-crisis era highs reached in the third quarter of 2008. To be sure, the form of debt is rather different this time around: instead of housing loans during the subprime mess, the worrisome components this time around are student loans, auto loans, and credit card debt to a lesser extent. The intuition, however, is the same: monies going towards servicing these debts reduces disposable income in a consumer-driven economy. So, as these debt levels rise even further, consumer spending would be expected to take a concomitant hit.

One saying is that something unsustainable has to, by definition, stop. Another saying goes the higher they rise, the more they have to fall. I have a bad feeling we're about to reach the sudden stop, and that the higher people push things without justification, then the dislocations that will result from returning asset valuations and the rest back to more reasonable levels will be larger.

It's hard to say that it's *only* a US phenomena here insofar as (1) the rest of the world is still funding American profligacy and (2) the rest of the world still relies on the United States as the consumer of last resort. Colloquially speaking, what happens economically in America does not stay in America. In all these respects, the world economy today is similar to the pre-crisis one, and sensible sorts will at least take caution in its possible implications.

1/30 UPDATE: The US household savings rate keeps dropping. For December 2017, it's reported to have fallen further to 2.4%. I really do worry about how America's fate often has negative implications for the rest for the world.

1/31 UPDATE: Also see this summary of risk factors identified by the World Economic forum. Many are similar to those identified above.