Chief economist update: Can't get enough of war

War: it seems that US president Donald Trump cannot get enough of it.

Trump began his war crusade with the media (and fake news), then moved on to North Korea (although this was instigated by Kim's nuclear "exercises"), then trade and China, last weekend Syria (and indirectly Syria's sponsor Russia), while at the same time waging war at home with the FBI, his own party and his executive team.

Just when we thought Trump has forgotten that "other war", the Department of the Treasury released its report entitled "Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States."

Yes, the currency war manifesto.

"This report, by monitoring where unfair currency practices may be emerging and encouraging policies and reforms to address large external surpluses, represents an important component of the administration's strategy for securing a stronger America and a more robust and fair global economy," the report said.

The report listed thresholds for three criteria "specified in the Trade Facilitation and Trade Enforcement Act of 2015":

(1) a significant bilateral trade surplus with the United States is one that is at least $20 billion;
(2) a material current account surplus is one that is at least 3 percent of gross domestic product (GDP);
(3) persistent, one-sided intervention occurs when net purchases of foreign currency are conducted repeatedly and total at least 2 percent of an economy's GDP over a 12-month period.

Based on the US Treasury's findings, China, Japan, South Korea, Germany, Switzerland and India are thus put in the "Monitoring List".

"Japan, Germany, and Korea have met two of the three criteria in every Report since the April 2016 Report (the initial Report based on the 2015 Act), having material current account surpluses combined with significant bilateral trade surpluses with the United States. Switzerland has met two of the three criteria in every Report since the October 2016 Report, having a material current account surplus and having engaged in persistent, one-sided intervention in foreign exchange markets.

"China has met one of the three criteria in every Report since the October 2016 Report, having a significant bilateral trade surplus with the United States, with this surplus accounting for a disproportionate share of the overall U.S. trade deficit. India met two of the three criteria for the first time in this Report, having a significant bilateral surplus with the United States and having engaged in persistent, one-sided intervention in foreign exchange markets."

True, this. But the US economy is experiencing a trade deficit because it's growing by much more than these countries: US GDP per capita grew by 15.8% between 2016 and 2017; China by 7.0%; Japan by 2.9%; South Korea by 10.2%; Germany by 3.0%; India by 9.2%. Switzerland's per capita GDP growth even fell by 2.4% between 2016 and 2017.

The US is a victim of its economy's relatively stronger expansion - one that would, in time, flow through to other economies around the world, restoring equilibrium in trade and exchange rate dynamics.

Perhaps, Trump just "love the smell of napalm in the morning".

Read more: United StatesChinaGermanyIndiaJapanSwitzerlandDonald TrumpSouth KoreaSyriaNorth KoreaRussiaUS Treasury
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