Category Archives: Trump

31/7/18: 65 years of profligacy and few more yet to come: U.S. Government Deficits

The history and the future of the U.S. Federal Government deficits in one chart:

Which shows, amongst other things, that

  1. The post-2000 regime of deficits has shifted to a completely new trend of massively accelerating excessive spending relative to receipts;
  2. The legacy of the Global Financial Crisis and the Great Recession far exceeds traditional cyclical increases in deficits;
  3. The more recent vintage of the Obama Administration deficits has been more moderate compared to the peak crises years;
  4. The ongoing trend in the Trump Administration deficits is dynamically exactly matching the worst years of Obama Administration deficits, despite the fact that the underlying economic conditions today are much more benign than they were during the peak crises period under the Obama Administration; and
  5. Based on the most current projections, by the end of the year 2023, the U.S. is on track to increase cumulated deficit from USD 12.227 trillion at the end of 2016 to USD 20.466 trillion.  This would imply an average annual uplift of USD 1.177 trillion, which is significantly higher than the average annual increase in deficits of USD 838.3 billion recorded over the 2009-2016 period.
The good news is, fiscally responsible,  financially conservative, taxpayer interests-focused Republican Party has given full support to the Trump Administration on what in fact amounts to a restoration of the peak crises period trends in deficits accumulation.

5/7/18: Does the WTO treat the U.S. "very badly"?

Yesterday, President Trump has suggested that the WTO is treating the U.S. "very badly"

In reality, the U.S. leads WTO in terms of dispute resolutions wins and in terms of intransigence to WTO functioning and reforms. Here is a slide from my lecture on international institutions frameworks highlighting this fact:
In the previous post, I also shown that the U.S. contributes disproportionately less than the EU and China to WTO budget:

In fact, back in October 2017, President Trump claimed that: Trump, Oct. 25: "The WTO, World Trade Organization, was set up for the benefit for everybody but us. They have taken advantage of this country like you wouldn’t believe. And I say to my people, you tell them, like as an example, we lose the lawsuits, almost all of the lawsuits in the WTO — within the WTO. Because we have fewer judges than other countries. It’s set up as you can’t win. In other words, the panels are set up so that we don’t have majorities. It was set up for the benefit of taking advantage of the United States."

WTO dispute resolution rules require that none of the panelists on each 3-person panel hearing disputes cases can be from the country involved in a dispute (per Article 8: In other words, the number of experts from any particular country that are available to serve on dispute resolution panels is immaterial to the experts service in the U.S. dispute cases.

In reality, thus, the U.S. loses slightly fewer cases brought against it, than it wins cases brought against other nations by it. The high rates of U.S. losses and wins are fully comparable with those of other advanced economies and reflect, in fact, not some WTO bias against any given nation, but rather the simple fact that majority of nations, including the U.S. tend to bring to the WTO arbitration only such cases where concerns raised are well-founded and researched. Which, in effect, means that the WTO dispute resolutions system (slow as it might be) is effective at restricting the number of frivolous cases being brought to resolution, aka, a good thing.

Much of the above evidence does not just come from my own arguments alone. Here is an intelligent and pro-trade set of arguments about why the U.S. claims of unfair treatment under the WTO regime are not only wrong, but actually conceal the much less pleasant protectionist reality of the Washington's policies:

3/7/18: China, EU and U.S.: Arch Stanton’s grave

In a recent statement on Fox News, the U.S. President has compared China and the EU in quite stark and unfavourable, to the EU, terms: ""The European Union is possibly as bad as China, just smaller. It’s terrible what they do to us,” Trump said." Contextually, the statement relates to trade, but it prompted a torrent of replies from Mr. Trump critics, pointing to various aspects of the statement as being untrue. One example:

The problem is, as commonly the case with economic statistics, there is a number to suit any point of view, and the choice of metrics matters.

  • GDP comparatives 1: in current prices terms, expressed in billions of U.S. dollars, China's GDP in 2017 was USD12.015 trillion, against the EU's USD 17.309 trillion. The EU was 'bigger' if not 'badder' than China. The U.S, was 'bigger' than both at USD 19.391 trillion.
  • GDP comparatives 2: in Purchasing Power adjusted terms (expressed as International dollars to take account of exchange rates differentials and price differences), China GDP was IUSD23.159 trillion against smaller EU GDP of IUSD 20.983 trillion and even lower U.S. GDP of IUSD19.391 trillion. Since PPP adjustment, imperfectly, accounts for the simple fact than people in China and the EU do not live in a dollar-priced world, although some of their imports do reflect dollar-priced goods and services, this is one of the salient measures for comparing three economies. And by this measure, Mr. Trump is correct: the EU is 'smaller' than China, although the U.S. is smaller than both.
  • Trade measures: EU ranks second in the world in terms of exports and imports of merchandise trade (excluding intra-EU trade), and it ranks first in the world in terms of exports and imports of services; with total extra-EU trade accounting for 16.8 percent of EU GDP. Merchandise exports amounted to USD 1.932 trillion in 2016, with merchandise imports of USD 1.889 trillion, services exports of USD917 billion against services imports of USD771.8 billion. China ranked first in the world in merchandise exports and second in the world in merchandise imports, fifth in commercial services exports and second in services imports. China's trade with the rest of the world amounted to 20 percent of its GDP, with merchandise exports and imports of USD2.098 trillion and USD1.587 trillion, respectively, and services exports and imports of USD207.3 billion and USD449.8 billion respectively. So total EU trade volumes were USD 5.51 trillion in 2016 against China's USD 4.342 trillion. 'Large' Europe, 'small' China. The U.S. total trade volumes with the rest of the world were between the two at USD4.921 trillion, making the U.S. smaller than the EU.
'Badness measures':
  • One possible measure of a nation's 'badness' in trade is the number of official disputes involving that nation as a complainant or the respondent in the WTO. Per WTO 2018 Annual Report, over 1995-2017 period, the U.S. were involved in 115 disputes as a complainant and 134 disputes as a respondent. 'Badsky' China numbers were 15 and 39 respectively - both, fractions of the U.S. Aggregating the EU member states' numbers, EU was involved in 107 and 122 disputes, respectively, although omitting states' disputes before they joined as the EU members reduces these numbers to 98 and 111. Which means the EU is 'worse' than China, but 'better' than the U.S. when it comes to following rules-based trade. The comparative, of course, is distorted by shorter duration of China membership. Adjusting for that, China figures rise to around 50 disputes filed and 160-170 disputes responded, making things even more complicated in terms of 'badness'.
  • Another possible measure is the current account surplus each country / block runs against its trading partners. IMF delivers some stats. The U.S. is the 'Goldilocks goodie' in that department, using dollar reserve currency status to run massive deficits at USD 466.25 billion in 2017 (similar to 2016 USD451.7 billion deficit, but vastly smaller than the IMF-projected CA deficit of USD614.7 billion for 2018 - all praise Mr. Trump's profligacy). China is clearly a 'baddy' in these terms, with a current account surplus of USD 164.9 billion in 2017, down on USD202.2 billion in 2016. The EU, however, is in the league of its own 'awfulness', with current account surplus of USD417.24 billion in 2017 up on surplus of USD332.5 billion in 2016. So the EU is 'badder' than the already 'bad' China in these terms.
  • Third measure of 'badness' as it relates to trade is the physical support for WTO by each country/block, which can be measured by the annual share of each in total WTO budget. Again, per WTO report cited above: the EU share of total WTO budget is 33.6 percent, against the U.S. 11.38 percent and China 9.84 percent. While China's budget contribution should be lower due to the country having s bizarre, 'non-market economy' status in WTO standing, U.S. contribution is small relative to the country's share of global GDP, while EU's share is disproportionately large. Who's the 'baddest' in these terms?
  • Fourth measure of 'badness' can be trade-weighted average tariff imposed by the country. WTO latest data on this covers 2015. The EU run 3.0% trade-wighted average tariff across all of its trade, with average agricultural tariff of 7.8% and average non-agricultural tariff of 2.6% with 100% binding coverage. China average trade-weighted tariff was 4.4% (agricultural 9.7% and non-agricultural 4 percent) with 100% binding coverage. Which makes China 'badder' than the EU. U.S. comparable figures were 2.4%, 3.8%, and 2.3% for average trade weighted tariffs, and 99 percent binding coverage. In summary, the EU is marginally 'worse' than the U.S. and vastly 'better' than China when it comes to tariffs protection.
  • In bilateral trade protection terms, 58.3 percent of non-agricultural imports from the U.S. were duty-free in the EU, against 19.6 percent of EU imports from China. China imported 56.5 percent of its imports from the U.S. duty-free, and 46.5 percent of imports from the EU were also zero-duty. U.S. imports from the EU were 64.9 percent duty-free and its imports from China were 35.5 percent duty free. When it comes to U.S. exports, the EU was a better destination, in these terms, than China. 'Better' EU than China in these terms.
We can draw many more comparatives in trying to gauge what 'worse' and 'smaller' might mean in the case of China vs EU comparatives when it comes to possible White House-targeting criteria. In reality, economics, trade, trade policies and finance are complex. Far more complex than Spaghetti Western. Yet, even 'The Good, The Bad, and The Ugly' had serious shades of grey when it came to delineating the three villains Mexican standoff at the Arch Stanton's grave. 

16/6/17: Trumpery & Knavery: New Paper on Washington’s Geopolitical Rebalancing

Not normally my cup of tea, but Valdai Club work is worth following for all Russia watchers, regardless of whether you agree or disagree with Moscow-centric worldview (and  whether you agree or disagree that such worldview even exists). So here is a recent paper on Trump's Administration and the context of the Washington's search for new positioning in the geopolitical environment where asymmetric influence moves by China, Russia and India, as well as by smaller players, e.g. Iran and Saudis, are severely constraining the neo-conservative paradigm of the early 2000s.

Making no comment on the paper and leaving it for you to read:

13/6/17: Four Months of the Invisible Fiscal Discipline

U.S Treasury latest figures (through May 2017) for Federal Government’s fiscal (I’m)balance are an interesting read this year for a number of reasons. One of these is the promise of fiscal responsibility and cutting of public spending and deficits made by President Trump and the Republicans during last year’s campaigns. The promise that remains, unfortunately, unfulfilled.

In May 2017, cumulative fiscal year-to-date Federal Government receipts amounted to $2.169 trillion, which is $30 billion higher than over the same period of 2016. However, Federal Government’s gross outlays in the first 8 months of this fiscal year stood at $2.602 trillion, of $57.345 billion above the same period of last year.As a result, Federal deficit in the first 8 months of FY 2017 rose to $432.853 billion, up 6.77% y/y or $27.44 billion.

Given that 4 out of the 8 months of FY 2017 were under the Obama Presidency tenure, the above comparatives are incomplete. So consider the four months starting February and ending May. Over that period of 2017, Federal deficit stood at $274.274 billion, up 11.17% or $27.569 billion on February-May for FY 2016. In this period, in 2017, Trump Administration managed to spend $51.9 billion more than his predecessor’s presidency.

You can see more detailed breakdown of expenditures and receipts here: but the bottom line is simple: so far, four months into his presidency, Mr. Trump is yet to start showing any signs of fiscal discipline. Which raises the question about his cheerleaders in Congress: having spent Obama White House years banging on about the need for responsible financial management in Washington, the Republicans are hardly in a rush to start balancing the books now that their party is in control of both legislative and, with some hefty caveats, the executive branches.