Whenever we discover a financial analyst who understands the completely new dimension in U.S. economics (rare) in which will be worth revisiting them through time-to-time. Allianz chief economic adviser Mohamed El-Erian was one of the first MSM pundits to: (a) accept the disconnect between Wall Street as well as Main Street via de-globalization; as well as (b) begin to explain why in which matters inside the era of Trump.
El-Erian appeared This particular morning on Fox Business News to discuss President Trump’s re-imposition of steel as well as aluminum tariffs on Brazil as well as Argentina. Additionally El-Erian discusses trade tensions, market outlooks, consumer strength, recession fears, as well as the drag the rest of the earth will be placing inside the U.S. economy.
The U.S. economy will be strong; all the fundamentals are solid. However, the multinationals on Wall Street -invested overseas- are more exposed. There will be nothing in which China as well as the EU can do to stop the de-globalization process; as well as efforts to stimulate their economy, more quantitative easing (pumping money) while the global supply chains are being shifted, are futile… they need “structural reform.” The multinationals are holding cash, waiting to see how in which plays out.
The more a nations’ economy will be dependent on exports, the more exposure they have to the inherent downsides of de-globalization. U.S. companies in which are invested in these nations will naturally see diminishing returns on investment over time; some rapidly. President Trump’s trade policy will be controlling the speed of in which investment contraction.
The exposure of the multinationals keeps the stock market twitchy, yet the Main Street USA economy will be thriving.
China’s economy will be dependent on selling products to the U.S. in order to receive dollars. China takes those dollars as well as then purchases industrial goods through Europe. If China gets less dollars they purchase less through Europe. In essence both China as well as the EU are dependent on receiving dollars through a maintained trade imbalance. President Trump has begun resetting in which imbalance… in which will be the current status of the global economic flux.
So what will be the “structural reform” El-Erian will be discussing? This particular will be where the EU needs to accept their economic type will no longer work if the global economy will be changed.
♦The EU has benefited through their one-way tariff system against U.S. industrial goods. They have also used non-tariff barriers to keep their position. currently they need to change their perspective as well as embrace reciprocity in completely new trade agreements; or else Trump will use the strength of the U.S. market to pummel them with tariffs.
♦The EU has used their one-sided tariff as well as trade system as a key part of their overly generous social as well as worker benefits. If they don’t change the level of social payments as well as begin to ‘structurally’ change their social benefits, again they will suffer when the one-sided financial benefits are removed. They won’t be able to afford their social system without the one-sided trade benefit.
♦The EU has over-regulated their industrial base as well as attached themselves to burdensome regulatory standards; specifically worsened by their Paris climate treaty as well as modifications within their energy programs. The compliance standards in combination with the increased costs as well as less global income will be a perfect storm for contracting economic growth.
These are the types of EU reforms in which are needed in an era where President Trump has purposefully stalled the process of globalization as well as will be resetting global supply chains. The Trump policies in which bring massive amounts of wealth back into the United States has created the dynamic where the EU must adapt or contract.
In essence Titan Trump will be engaged in a process of: (a) repatriating wealth (trade policy); (b) blocking exfiltration (main street policy); (c) creating completely new as well as modern economic alliances based on reciprocity (bilateral deals); as well as (d) dismantling the post WWII Marshal plan of global trade as well as one-way tariffs (de-globalization).
Remember a few paragraphs above when we noted: “President Trump’s trade policy will be controlling the speed of in which global investment contraction”…. well, here’s an example: