writer is from Guotai Junan macro team, "macro Changchun", the original title is "if Trump was elected president of the United States -- on Sino US trade, the RMB exchange rate and asset allocation effect", authorize Wall Street knowledge published.
Abstract: Trump's foreign economic policy to trade protectionism as the core, if elected will adversely affect the global economy. Global economic growth may fall, inflation could be pushed up, and trade surpluses with large trade surpluses with the United States, especially in China and other Asian economies, will be reduced.
or increase the downward pressure on China's economy. The two candidates' trade positions are tough, in contrast to Trump's more aggressive stance. Trump claims that China is a currency manipulator, and impose a 45% tariff on Chinese imports. China is the world's most important trade partner, will benefit, fighting will hurt all, we believe that even if Trump is elected, the possibility of Sino US trade war is not comprehensive, but the local trade war may erupt.
or increase the pressure on the devaluation of the renminbi. Trump was elected is expected to be difficult to change the Fed's interest rate process, but may exacerbate China's capital outflows, thus increasing the pressure on the RMB devaluation. Trump advocated cutting corporate income tax and the return of overseas profits of American companies only levy low taxes, may attract more overseas funds to return to the United States, increasing the outflow of capital in china.
bad risky assets, good safe haven assets. Wall Street as the representative of the financial industry is the Democratic candidate Hilary's loyal fans, if Trump wins the election, the capital market will vote with their feet, after the accumulation of risk may be concentrated outbreak. U.S. stocks represented by the risk of assets is likely to be a significant correction, while the gold and the yen as the representative of safe haven assets will usher in a new rise in space.
text: Republican Trump "horse stance reached the U.S. presidential election, from the primaries generally are not optimistic about the polls today to be roughly the same with senior politicians Democratic candidate Hilary, the final results of the election is full of suspense. If Trump was elected president of the United States, the United States and the global economy will have a profound impact.
1. Trump's trade protectionism and its impact on the global
Trump's domestic economic policy to tax cuts as the core. The includes the following points: (1) advocate Reagan era since the largest tax, personal income tax, the advocates of tax reduction for all people, the current personal income tax progressivity file from 7 reduced to 12%, 25% and 33%; the corporate income tax, corporate income tax should be reduced from 35% to 15% 10%; only levied on foreign capital return to the U.S. tax. (2) to strengthen infrastructure construction, intends to issue "infrastructure bonds", open private purchase, the infrastructure investment is at least two times (that is, at least $500 billion) Hilary. (3) to tighten monetary policy, to criticize the Fed's low interest rate policy, and to support the Federal Reserve to raise interest rates. Reagan is one of the most successful Republican president, take tax policies to promote economic growth, leading the United States out of the economic crisis the most serious stagflation. Trump often to Reagan since the ratio, its supporters also believe that he will become the next Reagan.
Trump's foreign economic policy as the core of trade protectionism. The includes the following points: (1) against the free trade agreement, advocated the abolition of the "trans Pacific Partnership Agreement" (TPP), consider the "North American Free Trade Agreement" (NAFTA) re negotiations, threats from the World Trade Organization (WTO) exit. (2) launched a trade war, advocates to impose a 20% tariff to all imported goods, to impose punitive tariffs on unfair dumping and subsidies, special interests to protect the American domestic uncompetitive. (3) to crack down on violations of intellectual property rights and encourage innovation (Table 1). Trump's trade protectionism is not just a campaign speech, in fact, his claims can be traced back to at least 80s, when he was strongly opposed to NAFTA.
Table 1: Trump and Hilary policy contrast" we think Jo Trump is elected, the overall impact on the global economy, asset allocation may include:
first, global economic growth is likely to decline. although Trump advocated to increase infrastructure investment and tax cuts in the United States, but in fact these policies might be due to a substantial weakening of fiscal sustainability and difficult to implement, so it may not stimulate the U.S. economy to a great extent. Instead, his election has made the world's biggest economy a big uncertainty, which could hit America and the world's investment confidence. In addition, the uncertainty of risk assets in the high prices will generally sell-off -- indeed, stocks and European stocks since Hilary "mail" incident is heating up again after falling, it will transfer to the global economy through the wealth effect, confidence and credit effect. The worst case scenario is a trade war between the United States and its major trading partners under the Trump administration, disrupting the global production chain and affecting global trade and production.
second, inflation may be pushed up. if the United States of America by the global leader for trade protectionism, and the latter's rise may push up the cost of trade, also have a supply of impact on many economic, is likely to lead to cost - push inflation. On the other hand, the process of globalization may enter a relatively slow, or even reverse, so after at least 4 years of global production enterprises through the configuration to reduce production costs become difficult, which may push up inflation.
third, the trade surplus of trading partners to reduce. Trump's election would reduce the country's trade surplus with the United States with a large trade surplus. China and other Asian economies are likely to be affected.
fourth, further leading to the United States to heat up the risk aversion, bad risky assets, good gold, yen and other safe haven assets. to Wall Street as the representative of the financial industry is the Democratic candidate Hilary's loyal fans, if Trump wins the election, the capital market will vote with their feet, after the accumulation of risk may be concentrated outbreak. The capital market fears Trump was elected mainly for the following reasons: one is the
Trump is a successful real estate businessman, but never had political experience, Hilary has been in politics for decades of ups and downs, after Trump was elected the ruling of uncertainty is much higher than that of Hilary;
two is the Trump campaign advocated far more radical than Hilary Trump, trade protectionism that could trigger a trade war, the United States and the global economic recession;
three stocks in the eight years of the Obama administration to achieve a long cattle, with Hilary for the Democratic Party's election could mean the policies of the Obama administration largely continued, and Republican Trump was elected may mean great changes of the ruling idea. The higher the panic index VIX, which indicates that market participants expected volatility of the market outlook will be more intense, but also reflects the psychological state of anxiety. Since
Trump in October 22nd published the Gettysburg Address leads to support rate increase, VIX index continued upward, especially in October 28th, FBI announced the resumption of Hilary "mail door survey, VIX index has soared, has been refreshed since late June highs to 22.43 (Figure 1). The same is in Trump's Gettysburg Address since two weeks, the price of gold rose 2.8%, the yen dollar exchange rate rose 1.2%. If Trump really finally elected to the United States as the representative of the risk assets is likely to be a significant correction, while the gold and the yen as the representative of safe haven assets will usher in a new rise in space.2." the election of Trump or
2.1. Trump China increase downtown pressure on the economy trade with China advocated more aggressive
two candidates in China are relatively strong trade position, compared with Trump's more radical. Trump's trade with China is mainly the following: first, he will order the finance minister to make China a currency manipulator. According to the comprehensive trade and competition law by the United States in 1988 "(Omnibus Trade and Competitiveness Act), the Ministry of Finance shall be submitted every six months" international economic and exchange rate policies in Congress "report to Congress, time for May and November, respectively, on the 1.5 annual assessment of the major trading partners of the exchange rate policy, to confirm the presence of the exchange rate manipulation". Once the existence of a country to determine the exchange rate, the United States will not only by IMF to the government to put pressure on its exchange rate policy, it is more likely to impose taxes on the country's exports of goods such as trade means to retaliate. In fact, since 1994, the United States will no longer be any one trading partner to determine as a currency manipulator".
second, if China does not cooperate with the United States, it will impose a punitive tariff of 45% on all imports from china. Third, crack down on violations of intellectual property rights, encourage innovation. Hilary's trade policy toward China than Obama tougher, said in her presidency, if Chinese trade rules will be severely damaged, accused, and accused Chinese at low prices to the global market "dumping" steel, the British and American Iron and steel industry suffered a heavy blow. However, if Hilary is elected as possible than trump mild, she neither advocated China as a currency manipulator, no tariff levied on China claims so high.
2.2. Sino US trade war probability is very low
China and the United States is the world's most important bilateral trade partners, cooperation will be a win-win situation, the struggle is double lose. according to the U.S. Department of Commerce statistics, in 2015 the United States and Chinese bilateral import and export of goods amounted to $598 billion 70 million, the proportion of all U.S. import and export volume was 15.7%, for the first time in more than China Canada became the largest U.S. trading partner. Economic and trade cooperation is the common interest of the common interests of the area, but also the two countries through bilateral cooperation and control differences to obtain practical interests, to achieve mutually beneficial areas. Sino US bilateral trade volume and two-way investment stock of high-speed growth, to promote employment and economic growth of the two countries made a great contribution. Both history and reality show that the two countries will benefit, fighting will hurt all. Maintaining the normal development of Sino US economic and trade relations is an inevitable choice to meet the interests of the United States. As the two meetings, Premier Li Keqiang said, the development of Sino US economic and trade relations have never been a win-win situation, this point, the United States businessmen who are the most clear. Now the United States is holding a general election, very lively, eye-catching, but no matter who the house, who eventually became president, I believe that Sino US relations will not change the general trend of development. "
comprehensive trade war would cause double lose results, the United States will suffer heavy losses. famous American Pedersen Institute for international economics of Trump trade war consequences scenario analysis, the results show that: in the total trade war scenario, U.S. tariffs on goods imported from Mexico, China were collected 45% and 35%, Chinese and Mexico for the United States imports the same tariff, the United States will import and export shrink, domestic prices rise, consumption and investment for many years no less than the benchmark case of a trade war, economic growth continued to decline in 2019 and entered the economic recession, the unemployment rate from the current 4.9% to 2020 climbed to 8.6%; in the suspension of a trade war scenario, that the United States of Mexico and Chinese high tariff policy implementation after one year suspension the United States, consumption and investment will also be lower than the benchmark for a number of years, economic growth in 2018 will be reduced to 1.2%, The unemployment rate will rise to 6% in 2019 (Table 2). Nobel Laureate in economics, Professor Stiglitz also believes that the U.S. economy will start a trade war will become the biggest loser. Class= img_box "
"perview_img_p content_img_p" and China's comprehensive trade war also need to be approved by congress. in the United States, the president does not have the authority to impose a 45% punitive tariff on the goods of another country, which requires its congressional mandate. Even if the Republicans control Congress, it is expected that Congress will be difficult to approve a comprehensive trade war with china. Of course, according to the trade act of 1974, the president could impose a 15% tariff on the balance of payments in the United States, but not more than 150 days. The history of the United States is seldom the case, in addition to the tariff on all imported goods by President Nixon in 1971 10% to force a comprehensive collection of Japan and other major economies of the currency appreciation (i.e. the "Nixon shock"). In 2015, the U.S. current account deficit was 2.57% of GDP, compared with the past 10 years (2006 5.82%), the level of this deficit may be difficult to be defined as serious".
candidate after there may change policy? Likely, there is no lack of precedents in history. candidates for consideration during the campaign for votes, often make unrealistic promises some exaggeration. But once successful election, due to changes in the position of the country and the interests of the parties and the balance of power, the original campaign for the appropriate development of discarded, in the history is not uncommon. In 1980, for example, Republican candidate John Reagan criticized President Carter for establishing diplomatic relations with China during the election campaign, and vowed to restore "official ties" with Taiwan, but he was elected to deny that he had this position. As of 1992, the Democratic candidate Clinton during the campaign strongly opposed the North American Free Trade Agreement (NAFTA), the agreement is President Bush signed at the end of his tenure, but after the election, President Clinton to support the NAFTA and push Congress finally passed the agreement. Therefore, it can be predicted that if Trump was elected president, he turned out to be too radical trade advocates to make adjustments is a big probability event.
2.3. Sino US trade war may break out, increase the downward pressure on China's economy
Sino US trade war may erupt. Trump, if elected, although the US comprehensive trade war unlikely, but due to fulfill campaign promises into consideration, will make some symbolic gesture, is expected for the part of Chinese tariffs or barriers, Sino US trade friction will increase. At present, the United States imports of goods from China to mechanical and electrical products, according to the U.S. Department of commerce data, imports in 2015 amounted to 237 billion U.S. dollars, accounting for 49% of the total U.S. imports from china. Furniture, toys, textiles and raw materials and base metals and products respectively in the United States, since second Chinese imports of third and fourth, imports in 2015 were $55 billion 610 million, $42 billion 620 million and $24 billion 870 million, accounting for 12% of total imports from the United States Chinese, 9% and 5% (Figure 2). If Trump was elected, for some Chinese goods launched a partial trade war, then the mechanical and electrical products may be the first to bear the brunt of the. Class= img_box "
"perview_img_p content_img_p" may increase the downward pressure on China's economy. our previous research shows that China is now likely to be at the top of a super financial cycle, 2017 will be the first year of China to enter the second half of the financial cycle. Rely on credit to sustain economic growth seems to have reached its limit, will auto consumption demand of real estate investment, 2016 to spur economic growth due to the tightening of credit in 2017 2017 the weakening of downtown pressure on the economy will become more prominent. If the United States to raise tariffs on China electromechanical products, on the one hand will China the weak exports on the other hand, one disaster after another, Chinese will lead to investment in manufacturing and employment declined to influence China economy in a greater extent.
if the middle level of the trade war, it is expected that the government might be forced to again loose monetary policy to hedge against external shocks, which delayed our financial cycle into the second half, which will continue to push the high financial risk in china.
3.1. is expected to increase RMB devaluation pressure fed rate hike process won't affect the
regardless of whether Trump and Hilary who was elected in December, roughly the rate will raise interest rates. this is mainly due to two reasons, one is the recent strong economic growth in the United States, higher inflation, to support the interest rate hike in December. U.S. three quarter GDP growth of 2.9%, ultra market expectations. October, the U.S. Markit manufacturing and non manufacturing PMI rebounded sharply, both hit a new high since 2016. Prices, the United States in September CPI and PPI have hit a new high since 2015. U. S. economy in the recent rebound in the volume of the situation is conducive to the process of interest rate increase in the United states. Two is the Federal Reserve for the maintenance of the credibility of the consideration is also supported in December to raise interest rates. At the beginning of 2016, the Fed is expected to raise interest rates 4 times, nearly two times the meeting of the Fed's statement stressed that interest rate reason has been strengthened continuously, if the final 1 did not increase, it will seriously affect the credibility of the Federal Reserve and the expected future management ability. Although Trump took office increased uncertainty, but will be officially took office in January 20, 2017, the short-term is unlikely to cause significant negative impact.
Trump's idea of replacing Yellen after the election is not realistic. Trump, the fed to raise interest rates and slow progress very dissatisfied, repeatedly criticized the Fed's low interest rate policy, and has said that if he finally won the election, will replace the current Fed chairman Yellen. In accordance with U.S. law, the Federal Reserve Chairman of the candidates nominated by the president, and the need for congressional approval, but once elected president of the Federal Reserve in his term of office will not be any political interference. United States President Barack Obama's nomination, Yellen in February 2014 began the four year of the Federal Reserve chairman. That is to say, before the end of the Yellen presidency, Trump to replace her. Yellen may face some pressure, but as long as the pressure to withstand the pressure does not resign, Trump will have no way. In addition, the Fed's monetary policy decision-making mechanism, the interest rate by the Federal Open Market Committee (FOMC) voted to commission members including 7 members of the Executive Committee of the Federal Reserve Board in Washington and 5 president of the Federal Reserve Bank, voting primarily changes in economic fundamentals and future based on the expected, is not affected by external political game interference. September Fed has lowered long-term economic growth rate and the federal interest rate expectations, which means that the process of interest rates will continue to be slow in the future.
3.2. Trump was elected China may exacerbate capital outflows, the devaluation pressures
Trump's policies may worsen and worsen the current account and financial account, thereby increasing the pressure of RMB devaluation. local trade war may have damaged China's trade surplus, the current account surplus may decline. In addition, the local trade war also makes the cost of production and assembly of enterprises in China rise, so that the attractiveness of foreign direct investment in China to reduce. In addition, the following proposition of Trump may attract more American overseas funds to return to their home: one is a cut in corporate income tax, corporate income tax will be reduced from 35% to 15%, the United States to reduce the enterprise tax burden; two is to move back to the United States overseas profit enterprises only one-time levy as low as 10% of the tax, to attract American overseas funds the three is claimed to be forced; Apple multinationals such as the Asian production line moved back to the United States, or to the enterprise tax levy of 35%. Data from recent years, the short-term capital flows and the RMB exchange rate is expected to have a higher degree of Association (Figure 3), China's capital outflows increased, the pressure of the devaluation of the RMB will increase again. Figure 3:
of short-term capital flows and the devaluation of the RMB exchange rate is expected to have a higher degree of association" (more exciting financial information, click here to download Wall Street knowledge App )
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