Category Archives: U.S.

24/9/15: The Ugly Faces of Trade Protectionism

Neat chart from Credit Suisse summarising the extent (and distribution) of new protectionist policies across several key economies:
Several points worth making:

  • The obvious one: the U.S. leads in terms of protectionism. Which is ironic, given the U.S. championship of open trade agreements (TTIP and TPP being the most current ones) and the U.S. tendency to de-alienate the world into 'Free Trade' and 'Protectionist' groups of countries.
  • BRIC come second and Europe comes third. Which is again highly ironic as BRIC rely heavily on trade-driven model for growth and Europe can't get over how (allegedly) free trade it is.
  • Everywhere, save Russia and the U.S., state aid & bailouts is minor segment of trade protectionism policies.
  • Export subsidies are meaningful in China and India.
  • Trade defence and finance measures dominate in the U.S., India, Brazil and Europe, and are weaker in Japan and China, while virtually non-existent in Russia.
All-in - a pretty ugly picture of reality post-crisis.

4/6/15: Trend-spotting Out in 3 Key Charts

If you want to understand the German (and the Euro area) economy key trend, here are three charts:

Source for all:

Combined, these imply one thing and one thing only: Domestic Demand (Investment + Consumption + Government Spending) can be sustained [in theory] over the next decades by just one thing: "Government Spending". In practice, the bad news is: such spending is neither hugely productive, nor feasible in current levels of indebtedness worldwide. Worse [from economic perspective] news: much of this spending will be swallowed by health & end-of-life services that will not be increasing the productive capacity of our societies.

In the mean time, logic of the above two charts implies:

  1. Increased build up of external imbalances (current account surpluses in more extremely ageing countries);
  2. Increased savings not suitable (due to risk profiles) for private investment (hence higher retail & long-term demand for highly rated bonds and equity, as opposed to higher growth bonds and equity); 
  3. Reduced domestic consumption;
  4. Heating up tax competition on the side of capturing revenues (as opposed to incentivising higher growth);
  5. Growing reliance on 'hidden' taxes (e.g. currency devaluations and indirect taxation) to amplify (1) and (4);
  6. Current 'peak productivity' generation (chart 3 above) is screwed on the double, and productivity growth curve going forward is downward-sloping, most likely even if we control for technological innovation.

All six points currently are at play. Draw your own conclusions.