Trade policy: Rumbles and grumbles

Trade policy: Rumbles and grumbles

Global trade agreements are on the table as governments change hands; U.S. growth checked in as present but subdued; 恭喜发财! (Best wishes for a prosperous year!)

"Protection will lead to great prosperity and strength."
U.S. President Donald J. Trump, in his January 20 inaugural address

Trade policy: Rumbles and grumbles The changes in leadership – both present and future – at the world's top trading nations have set off a flurry of moves aimed at renegotiating terms of trade. At stake: economic growth rates worldwide. This past week's most notable examples include the breakdown of initial dialogue between the U.S. and Mexico about NAFTA – the agreement signed in 1992 between the U.S., Canada and Mexico reducing trade barriers among the three nations. The Mexican peso has taken the brunt of the Trump administration's early efforts to change the status quo, falling as much as 17.5% vs. the U.S. dollar to a record low of 22.04, in the aftermath of the U.S. election.

Mexico-U.S. trade threatened to overshadow British Prime Minister Theresa May's visit to the U.S., during which she planned to meet with President Donald Trump to, among other things, promote bilateral trade agreements as the UK began its own negotiations with the EU over the terms of its planned withdrawal from the EU.  That, along with the upcoming elections in France and Germany (which feature newly strong populist, anti-EU candidates) and the U.S. abandonment of its TransPacific Partnership trade negotiations, may not bode well for the volume and value of global trade, as well as related economic growth.

In contrast to the US, China has publicly staked out a position in favor of free trade; "It’s far preferable for countries to trade goods and services and bond through investment partnerships than to trade barbs and build barriers.” Premier Li Keqiang wrote in a signed opinion piece in Bloomberg BusinessWeek.


U.S. growth: solid but subdued At an estimated 1.9% annualized rate for 4Q 2016, and a full-year 2016 rate of 1.6%, U.S. GDP growth was lower than consensus estimates, but with some encouraging features: Business equipment spending rose 3.1%, the first gain in five quarters; personal consumption grew at 2.5%, slightly slower than 3Q but still clearly positive; the GDP price index rose 2.1% in 4Q vs. a 3Q rise of 1.4%; final sales to domestic purchasers rose 2.5% in 4Q vs. 2.1% in 3Q. One politically-charged component: net imports subtracted 1.7% from GDP, the most since 2010. The estimate had little to no effect on markets' assessment of the course of Fed hikes this year,  with the implied probabilities rising to above 50% as of the May 5th FOMC meeting, and over 90% by the December 13 meeting.

Separately, capital goods orders rose 0.8% in December, after rising an upwardly-adjusted 1.5% in November; more than forecast, suggesting that business are investing in anticipation of improving growth – a sign of improving optimism that could be behind a long-awaited rise in capital investment. 


Singapore: 恭喜发财! Good news for the Lunar New Year ahead: consumer prices are on the upswing again, rising 0.2% in December year-on-year, above zero for the first time since the last part of 2014 – a harbinger of the return of growth. Core inflation rose 1.2% year-on-year in December. One unfortunate result:  the average prices of a key ingredient of New Year celebrations, caramelized barbecue pork, as reported by Bloomberg's Singapore office, have risen between 3.99 and 4.31 percent since last year's celebrations. 



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