Global News December 20, 2016

  1. Bloomberg
  2. Global News December 20, 2016

Project Syndicate

“The International Barriers to Trump’s Economic Plan”

Trump has established infrastructure investment, tax reform, and deregulation as central components of his strategy to boost the US economy’s actual and potential growth. Confident that his plan can unfold as intended, he has set ambitious targets, including GDP growth approaching 4% per year.

US will gradually exit its prolonged period of excessive reliance on unconventional monetary policy, replacing it with a mix of looser fiscal policy and pro-growth structural reforms – an approach much like that pursued by former US President Ronald Reagan. President Barack Obama sought to pursue a similar approach, but was frustrated by a highly polarized Congress.

If Trumponomics is to deliver on its promise, key countries – in particular, Germany (the largest and most influential European economy) and China and Japan (the world’s second- and third-largest economies, respectively) – must promote their own pro-growth policy adjustments. They should implement quickly growth-enhancing structural reforms to support monetary stimulus. Germany, in particular, would also need to pursue a looser fiscal policy, while adopting a more conciliatory attitude toward outright debt reduction for beleaguered Greece.

Unfortunately for Trump, the rest of the world does not seem prepared at this stage to pursue such a comprehensive policy shift. That is why, beyond advancing Trump’s pro-growth economic agenda at home, the newly appointed members of his economic team should be establishing direct contact with their German, Chinese, and Japanese counterparts, with a view to improving international policy coordination.

Germany, China, and Japan have good reasons to embrace such an approach. They are not getting enough out of monetary expansion at this point; the risk of collateral damage and unintended consequences is rising; and pro-growth structural reforms are overdue. Furthermore, helping the US to achieve healthy and sustainable growth would bring about an indirect boost to their own economies. And it would help to avoid a scenario in which a Trump administration, under political pressure, would threaten protectionist measures, increasing the risk of a trade war that would hurt nearly everyone.

Despite the uncertainty surrounding Trump’s impending presidency, one thing is certain, at least on paper: he is in a strong position to boost US economic growth. He and his team must, however, take the time to dismantle potential international barriers to success.



“May Holds Out Prospect of Brexit Agreement by September 2018”

An agreement on the terms of Britain leaving the European Union and its new trading arrangements with the bloc could be signed 18 months after the formal exit process begins, by the end of March next year, May told lawmakers in London on Tuesday. The premier said other EU leaders want the deal to be completed in time for it to be ratified by the European Parliament well before parliamentary elections are held in 2019.

“Negotiations will be challenging and, as with every international negotiation, they will require some give and take,” May told the Liaison Committee of the U.K. Parliament. But there is “willingness” from EU leaders “to ensure that we can undertake this as smoothly and in as orderly a fashion as possible,” she said. “It could be as little as 18 months.”

May faces a potential obstacle to her timetable with a court ruling due next month. The Supreme Court in London is due to decide whether the prime minister has the power on her own to trigger Article 50 of the Lisbon Treaty, setting in motion the formal start of the EU exit process, or whether she must first seek the consent of lawmakers.

If May loses the case, she is expected to produce a short bill that will have to be passed by both the lower and upper houses of Parliament, potentially delaying the Brexit process. Once Article 50 is triggered, the clock starts ticking on a maximum of two years for talks, at the end of which the U.K. will legally leave the EU even if no deal has been reached.