With trade issues on the wires today, this from BoAML Bank of America / Merrill Lynch on the US dollar impact, and more
Its a bit economicy … but I bolded the USD implication bit if you'd like to skip to there:
- Continuing tariffs and trade wars are a heightened risk, despite recent moves on NAFTA.
- US trade policy has focused on the overall and country-by-country trade deficit as if they were scorecards, and deficits were losses. But in our view, such an approach does not take into account that the trade deficit is more of an outcome of economic forces, rather than a representation of lost output. And the trade deficit is ultimately determined domestically, as the difference between savings and investment. This approach is not a theory, but simple accounting of the economy. If the trade deficit with one country, such as China, went away somehow overnight, that deficit would ultimately come back among other countries.
- USD strengthening would be the price mechanism to offset the impact on trade, which we have already seen to some extent this year amid trade war concerns with China and Europe, and a stark contrast to USD weakening in 2017.
Bank of America / Merrill Lynch add, even more bluntly:
- an acceleration in trade war would likely result in a higher USD, rather than improvements in trade balances.
---
We have already seen signs of an accelerating trade war with EU and China from President Trump in an interview today:
