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Irish Times
4 days ago
- Business
- Irish Times
Can belated economic sanity save the US from a Liz Truss-style fiasco?
The US approach to trade restrictions is a roller coaster. The tactic so far has been to announce a big increase in tariffs on its trading partners, then some degree of rowing back pending negotiations, then some new threats if negotiations aren't going fully the US's way. Now the US courts have intervened to at least delay proposed tariffs. It's not clear where all this will land. China confronted US tariffs that escalated to more than 100 per cent with its own countermeasures. Then negotiations opened and there has, for now, been significant rowing back . Alongside higher tariffs on steel and cars, the opening salvo against the EU was for 20 per cent tariffs, scaled back to 10 per cent while negotiations opened. The latest threat from the Trump administration is for 50 per cent tariffs on imports from the EU , unless agreement on a trade deal is reached by midsummer. Trade deals are complex and the window for reaching a deal is very short. The short-term effects of these threats are destabilising, both for exporters to the US and for US producers relying on imported inputs. READ MORE The objective of the US administration is, presumably, to see US production replace imported goods. However, unless US firms have spare capacity to replace imports, they need to build such capability. [ EU-US tariff talks: What happens next? Opens in new window ] No sane US firm will invest in new factories until it is clear what the final outcome will be from the negotiations with different big trading partners. In many cases, it could take years to bring such investments on stream – possibly only after the next US presidential election. If Trump's successor were to pursue a different trade policy, import-replacing investment might struggle to make money. The Republic of Ireland exported more than €50 billion of pharmaceuticals to the US last year. New US pharma capacity would be needed to replace imports from Ireland. Firms are unlikely to decide to invest in new factories in the US until they know what the final trade landscape will be. Then, if new plants are built, they will need regulatory approval to produce the relevant drugs in the United States, likely also taking years. Thus, it could take considerable time before pharmaceutical production could switch from Ireland to the US. How to manage your pension in these volatile times Listen | 37:00 Recent studies by the EU Commission and the Organisation for Economic Co-operation and Development (OECD) have looked at the possible effect of the US-initiated trade war on the EU and the US economies. The studies suggest that the trade war is likely to be particularly damaging for the US, with a much more muted impact on the EU. That is because the tariffs will raise the cost of US imports for US consumers and producers. In turn, this will lead to higher inflation, which could require the US central bank, the Fed, to raise interest rates, slowing the economy further. The EU research suggests that the unilateral imposition of tariffs by the US, just through their effects on trade, would reduce US national income by 1 per cent next year, while the impact on the EU would only be 0.2 per cent. Retaliatory action by the EU and others would raise the United States' loss to 1.5 per cent. The EU analysis also indicates that the US costs would be magnified by any increase in interest rates needed to choke off inflation. If the Fed were to raise rates to counter rising inflation, this could provoke a Trump response, overturning the Fed's vital independent role in setting interest rates. If this were to happen, the loss of faith in US economic policy would be likely to have even more serious consequences. However, the United States faces a further problem. US government debt is 120 per cent of gross domestic product (GDP), back to where it was in 1945 after the second World War. In the OECD, only the Greek, Italian and Japanese governments are more indebted. Nevertheless, the Trump administration plans to implement big tax cuts for the coming years. While serious cuts in expenditure, affecting social and health services, are also promised, the net effect will still mean borrowing of 6 per cent to 7 per cent of GDP each year, adding rapidly to the already high debt burden. The lesson we learned from the fiscal crisis in the 1980s, and again 15 years ago in the financial crash, is that if your national debt goes above 100 per cent of national income, you face big challenges borrowing at reasonable rates. Current US policy raises the possibility of a Liz Truss type event , where government interest rates rise significantly due to the prospect of an ever-increasing government debt burden. Hopefully, before this happens, sanity will prevail in US economic policy.
Zawya
07-05-2025
- Business
- Zawya
Oil rises as market eyes US-China trade talks, lower US output
LONDON: Oil prices pared gains on Wednesday but rose for a second session, finding support from positive investor sentiment over U.S.-China trade talks to be held this weekend and signs of lower U.S. shale output. Brent crude futures climbed 34 cents a barrel, or around 0.6%, to $62.49 a barrel by 1220 GMT, while U.S. West Texas Intermediate crude was up 44 cents, or 0.7%, at $59.53 a barrel. The U.S. and China are due to meet in Switzerland, which could be the first step toward resolving a trade war disrupting the global economy. "It is clear that hopes are high with respect to trade talks," said Bjarne Schieldrop, chief commodities analyst at SEB. Both benchmarks plunged to four-year lows this week after OPEC+ decided to speed up output increases, stoking fears of oversupply at a time when U.S. tariffs have increased concerns about demand. Still, some U.S. producers have signalled that they would cut spending, cautioning that the country's oil output may have peaked, which is also contributing to the uptick in the market, analysts said. "It's also worth noting that the OPEC production increase at the weekend was fully priced in," Saxo Bank analyst Ole Hansen said. The U.S.-China trade talks come after weeks of escalating tensions that have seen duties on goods imports between the world's two largest economies soar well beyond 100%. "However, volatility is expected to persist and the upside appears limited as OPEC+ will release barrels back to the market faster than expected and U.S. policymaking remains unpredictable," said Tamas Varga, an analyst at PVM, a brokerage and consulting firm. U.S. government data on stockpiles is due at 10:30 a.m. ET (1430 GMT). Analysts polled by Reuters expect, on average, an 800,000-barrel decline in U.S. crude oil stocks for last week. Crude stocks fell by 4.5 million barrels in the week ended May 2, market sources said, citing American Petroleum Institute figures on Tuesday.
