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US economy on artificial support

Ever since the US leader assumed office, the US economic fundamentals have improved. The economy grew at a solid 3.1 percent in the first three months of the year, up from 2.9-percent growth in 2018, both beating market expectations.
 
The unemployment rate stood at 3.7 percent in June, the lowest in nearly 50 years, signaling a strong labor market. The inflation rate was around 2 percent, accompanied by increasing residential income. The US currency is gaining strength, with the stock market performing well. The property market has witnessed sound growth over the past few years, nearing the condition of the pre-crisis period.
 
The US leader's economic policies have played a critical role in stimulating and pushing the latest round of economic growth.
 
However, these economic policies have focused too much on short-term tangible gains and served the political needs of courting voters during re-election, while lacking long-term planning.
 
The biggest move of the US administration was implementing large-scale tax deductions and exemptions, mainly by lowering the corporate income tax rate and encouraging US multinationals to bring home foreign profits following a revamp of the tax law.
 
Such a policy has many supporters and opponents, with the former acknowledging its effectiveness in stimulating growth and the latter worrying about the surging fiscal deficit and government deficit - eventually, it's the ordinary US citizens that foot the bill.
 
In addition to tax cuts, the US government has spared no effort in quickening large-scale infrastructure construction to improve the country's poor infrastructure conditions. However, due to a lack of funding and disagreements between Democrats and Republicans on this issue, the campaign has yet to be substantially carried out.
 
Traditionally, the US Federal Reserve is independent of the government when making monetary decisions and the US leader normally does not comment on it or intervene in the policy-making process.
 
However, such independence has been questioned by the current US leader and a change of stance has taken place in the Fed since the beginning of this year.
 
At the end of July, the Fed lowered its bench mark rate by 25 basis points from the previous level, the first rate cut by the central bank in more than a decade. Since there is no sign of marked economic weakness when the cut occurred, the move strongly goes against the logic of a central bank rate cut.
 
This is seen as the beginning of the Fed losing its independence in monetary policymaking, something the market worries will have a mid-to long-term negative impact on the economy.
 
The US leader has also publicly complained about the strength of the dollar since taking office, as he hopes to reduce the country's enormous trade deficit and a strong greenback curbs US exports. What's more, he often uses the exchange rate issue to pressure other countries and he has labeled China a "currency manipulator".
 
In the days to come, he's likely to continue attacking China in this field. Hence, the US leader's exchange rate policy is closely connected to his trade policy.
 
Adjusting trade policy is one of the US administration's priorities. It opposes free trade and advocates "fair" trade dependent on whether or not the US economic ties with its major trading partners are to its advantage.
 
When evaluating US trade policy, the US government prioritizes profit above all else and has attacked many economies, China being its main target, but also European countries, Japan, Mexico, Canada, Australia, India and Vietnam.
 
When dealing with the US trade imbalances, the biggest difference between the former US leader and the current one is that the former wished to create a global trading and investment system to pressure China while the latter has chosen to abandon the multilateral trading system to directly deal with China and other competitors.
 
The former US leader, when in office, promoted negotiations on the Trans-Pacific Partnership agreement, Transatlantic Trade and Investment Partnership and Trade In Service Agreement. Had his plan succeeded, a new trading and investment system with new rules and standards would have been established breaking away from the WTO.
 
The current US leader, on the other hand, has walked away from the TPP, renegotiated the North American Free Trade Agreement with relevant countries and is negotiating bilateral trade deals with Japan and South Korea, etc.
 
The current US administration thinks China has gained unfair advantages in Sino-US bilateral trade by offering subsidies to its domestic businesses, therefore the US has to levy tariffs on Chinese goods.
 
The US leader has taken credit for the US stock market rally, saying that it's the result of his successful economic governance. However, the US stock market has been bullish for nine consecutive years, with apparent bubbles.
 
It is widely acknowledged that the second half of this year to the end of next year will be a high-risk period. The last thing the US leader wants to see during his re-election bid is a turbulent stock market.
 
That's why he keeps jawboning the Fed to stop tightening monetary policies, because that's the only way to further push up the already quite high asset prices until after the election.
 
Right now, the US has robust economic fundamentals and real prosperity and the US administration's economic policies have indeed stimulated growth. However, this round of growth circle began before the current US leader assumed office, the quantitative easing of the previous administration laying the foundation.
 
Concerns over the US economy relapsing into recession have been mounting, with evidence of a slowdown in the growth in domestic consumption and manufacturing investment, indicating a possible sharp decrease in the near future.
 
The trade deficit is expanding, rather than narrowing. The stock market, once experiencing major adjustments, will push the economy on to a downward trajectory.
 
The US economy, once on the downturn, will remain there for a long period, just like this round of growth.
 
(The author is director of the International Investment Department of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily).
 
注:本文发表于China Daily,2019年8月23日,转载请注明出处。
 



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