Dollar, trade, taxation: how to Trump a game-changer for the global economy

The american president Donald Trump at the White House on 6 February 2018 (Photo Mandel NGAN. AFP)

The United States play the tax competition, are sending mixed messages on the dollar and take protectionist measures: one year after his arrival at the White House, Donald Trump has changed the outlook for the global economy.

In a sentence remained famous, the us Treasury secretary, John Connally, said in 1971, “the dollar is our currency, and from now on it is your problem”, in front of a gathering of european Finance ministers, already worried about the fluctuations of the greenback.

Nearly fifty years later, his successor at the head of the Treasury, Steven Mnuchin, was let go recently to a few confidences at the world economic Forum in Davos, stating it was very comfortable with a weak dollar which would have the advantage of encouraging exports and reducing imports, in resonance with the slogan “America first” by Mr. Trump.

This statement, which has reduced the value of the dollar, is in contradiction with the commitments of the United States at the annual meeting of the international monetary Fund: they were committed to “not to touch exchange rates for competitive.

The us president has corrected this later by wishing a “strong dollar.”

“The government Trump does not recognize what used to be called the monetary order world where the United States emit a currency key for the rest of the world and themselves comply with their own rules”, explains to the AFP, the economist Michel Aglietta.

“Therefore, it is clear that when there are problems of the dollar resulting from us policy in the fiscal or monetary (…), the difficulties are deferred in other countries”, he says.

Since the arrival of Mr. Trump at the White House, the greenback has gone from about 1,05 euro to about 1.25, which buoyed u.s. economic growth, which could reach 3% this year, according to a projection of Lazard Frères Gestion.

“The Americans, for the moment, are fairly satisfied. The exchange rate has decreased and it leads to an easing in financial conditions and it is well for american companies that export”, told AFP William de Vijlder, chief economist, BNP Paribas (PA:BNPP).

The weakness of the dollar does not touch for the moment, the other economies – the european Commission, for example, has been estimated at 2.3% growth of the euro area this year , but the looks are turned towards Washington.

The Europeans, for example, “have reminded that there is no salvation outside of the observance of multilateral rules. If the United States does not think to take the role of the multilateral, the european Union will take,” said to AFP a specialist in monetary policy under anonymity.

– Tax competition –

On the front tax, the rest of the world will have to adapt well to a lower corporate income tax to 21%, which was approved in mid-December by the u.s. Congress. “It is clear that when a country like the United States, lower business taxes, the other countries will have to integrate it to fix their rate,” says M. de Vijlder.

But this tax reform reactions are: at the beginning of December, five european countries, including France and Germany, had expressed to Mr. Mnuchin of “their concern”.

All that plus the expected declines on the income taxes, this measure will cost about 1,500 billion dollars in the u.s. budget over 10 years, with severe risks of increasing global imbalances”, as warned the governor of the Bank of France, François Villeroy de Galhau.

With regard to protectionism, other countries react on a case-by-case basis and particularly in light of the consequences of the decisions of Washington, as after the recent introduction of “safeguard duties” on solar panels imported from China, but also on the larger washing machines made in China, South Korea, Mexico, Thailand, and Vietnam.

According to Louis Kuijs, responsible for Asia in a note of the institute Oxford Economics, Beijing should not go beyond a “strong verbal response”.

“China understands that its exports to the United States are much more important than the reverse”. “In addition, even if they cause some damage, the us measures will not bring down its economy,” he explained.

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