April 19, 2017 Patrick Oliver-Kelley

Global growth is expected to be 3.4% this year. Janet Yellen says that we need fresh ideas and investments that can raise the output per worker, spend more on roads, bridges, and other infrastructure projects, change tax regulations, increase investment in infrastructure and in people. Avoid new trade barriers that hinder global competition. Above all, avoid seriously undermining trade, migration, capital flows, and the sharing of technologies across borders. Are you listening Trump?


In America, in Europe, in Asia, and in emerging markets- Broad based economic upswings are under-way. Rich world and developing world economies will put on a synchronized growth spurt. Despite this, a populist, economic nationalistic rebellion is also underway and sadly, is actively being underwritten by the White House. This dissonance is dangerous. Globalization is out of favor. If populists win credit for a more buoyant economy, their policies will gain credence, with devastating effects.

Globally, we have experienced many false starts and there are reasons to fret: China’s debt mountain; the flaws in the foundations of the euro; Trump’s protectionist tendencies, to name a few. In the last ten years. happily, America’s economy has continued to grow in-spite of it all. The Fed raised rates for a second time in three months, mainly because of the US economy being so strong. But also, because the fears about Chinese over-capacity and of a yuan devaluation have receded. Japan’s fourth quarter capital expenditures grew faster than it has in three years; The Euro area has been gathering steam since 2015; The European Commission’s economic-sentiments index is as high as it has been since 2011; South Korea notched up export growth by over 20%; Taiwanese manufacturers have expanded for 12 consecutive months; The Brazilian economy, with inflation expectations diminishing, interest rates are now falling; Both Russia and Brazil are likely to add to global GDP this year; Suppliers are restocking; Signals are strongest in manufacturing;. Demand for semiconductors has been picking up around the world; Business spending on machinery and equipment is picking up; American employers added 235,000, non-farm payroll jobs, in February; In fact, the economy in the US has been flashing green lights for seven months.

Entrenching this recovery calls for a delicate balancing act. As inflation expectation rises, so does complications to macro-economic policies. The biggest risk is the lessons politicians draw from this strength. Trump is not shy to sing his own praises at the merest positive sign, e.g. employment, or confidence numbers. He claims to have magically jump started job creation with sheer braggadocio. The US economy has added jobs for 77 months in a row! What is alarming is that Trump is so heavily tactical and seems disinterested in any kind of strategy.

In America, imports of both consumer goods and capital goods are up. Maybe it is true that Trump’s rhetoric has lifted ‘animal spirits’ of business people; however, and most importantly, the upswing has nothing to do with Trump’s America First’ economic nationalism. If anything, the global upswing vindicates the experts that today’s populists decry. Financial recoveries from crashes take a long time to be corrected. Experts agree that the best route to success is to clean up balance sheets, to keep monetary policy loose and to apply fiscal stimulus.

The breadth of the improvement- from Asia to Europe and America- makes for greater confidence that a pickup is underway. The tussle over who created the recovery is about more than bragging rights. Endorsement of populist policies would encourage insurgent political parties all over the world. Trump’s proposed tax cuts would pump up the US economy, an economy that is Least in need of stimulus. A fiscal splurge at home and a stronger dollar internationally, would widen our trade deficit. By giving populists credit where it is not due, sends all the wrong signals. Populists deserve NONE of the credit.

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