Make US companies more profitable again – Commerzbank

The goal of a restrictive US trade policy is to reduce the US current account deficit. That seems to me to be the sense of the tariff threats in economist terms. The incoming administration seems to want to do everything to make US companies more profitable: low corporate taxation, the lifting of environmental and consumer protection rules, etc. can probably be subsumed under this heading. In addition, US fiscal policy is likely to become much more expansionary, Commerzbank’s Head of FX Research Ulrich Leuchtmann notes.  

A more expansionary US fiscal policy is on its way

“The capital account and the current account are two sides of the balance of payments. The two balances are always equal in size. That equality is not based on abstract economic theory and does not hold ‘in equilibrium’, but it holds for simple accounting reasons. Every second and to the cent. The reported statistics do not reflect this truism, but only because official statistics cannot capture all transactions.”

“The combination of a business-friendly US economic policy, an expansive US fiscal policy and a restrictive Fed monetary policy leads to USD strength and thus (because (1.) in such a situation capital flows increasingly into the USA and (2.) the strong dollar worsens the price competitiveness of the US economy) to higher deficits in the US current account.”

“Sooner or later, the various aspects of Trumponomics could lead to contradictions. That’s when it comes down to the crunch. What is more important to the administration? Reducing the current account deficit? Or government spending and business-friendly economic policy? If the Fed doesn’t give in and allow inflation, I can well imagine the Trump administration intervening in the FX market and the US Treasury accumulating foreign exchange reserves to weaken the USD.”