American overture, i.e. the beginning of the reconstruction of the world we have known so far [OPINIA]

To prejudge it too early, we only know the first “notes” of this song. The duties announced at the beginning of April were (just before the declared beginning of their validity) suspended for 90 days and this period ends on July 9. This is a symbolic opening of the “negotiating window”. The US President “suspended Damocles sword” over countries with the largest trade surpluses from the USA and the period until the beginning of July will be a time of intensive negotiations. What motivates the US, and what motivates individual countries?

The US President has repeatedly indicated that the growing US deficits (in freight trade in foreign freight and federal budget) are a serious threat to this country. Referring to the deficit in freight turnover, he stated that it was “an extraordinary and extraordinary threat to national security and the economy of the United States.”

USA debtor of the rest of the world. Will customers help?

The introduction of customs duties – with a fire directed at China, for this country the suspension of customs duties does not apply, and at the time of writing this article duties on goods from China are covered by a rate of 145 percent. (with the exception of, among others, electronics, including computers and telephones) – is to be one of the steps on the way to a chronic reduction from the 1980s.

The occurrence of this deficit causes the growing of the so -called negative international net investment position of the USA, and to put it simply, such an investment position means that the US is the debtor of “the rest of the world”. The longer and the higher the deficits they have, the more they get indebted and the more they depend on the influx of capital from the outside.

Meanwhile, the erosion of their production base is simultaneously progressing. What then do? Can the duties be restored to the national manufacturing base and return to the situation, e.g. before 1980?

Reconstruction of production in the USA not so simple

Here we touch the essence of the problem. First of all, the manufacturing base was eroded, with different intensity, for several decades. It cannot be rebuilt in a few quarters or even years in the entire wide economy. Secondly, supply chains, especially in more advanced industries (e.g. a modern aircraft consists of several hundred thousand parts), are extended to many countries. The introduction of customs duties increases the costs of own production, because these parts cannot be replaced in a short time with “yours”, which would be equally cheap and equally good. Thirdly, “downloading production back to the country” encounters obstacles.

The first obstacle is No qualified staff: engineering, production. Secondly, even if such staff were developed (which will take years), build factories and equip them, it On -site production will be much more expensive. Example: The average wage in far-reaching Asia countries, which have the largest surplus from the USA, on average is $ 300-400. per month. In the US, it is a dozen (or even 20) times more … So even if you get staff, build factories – and everything would succeed – the products would be significantly more expensive, and the American consumer would pay for them.

Trump wants to move production to the USA, but not everyone

This would mean a lower standard of living for him – because for his salary he would be able to buy really less. Therefore, the likely US goal is a disposal – under the threat of high duties – industries with the highest added and strategic value (such as the production of chip and the most advanced electronics, the aviation and space industry, pharmaceuticals, etc.) to move to the USA.

However, when it comes to clothing or shoes products, it is likely to incline manufacturers to transfer their production lines to countries with still low production costs, but “playing in the US team” – that is, against China.

A likely part of the negotiated “Deal” (remember that the US president loves to make dealers, the larger, the better – he even wrote a book on this subject almost 40 years ago) also the military and geostrategic dimension. Most likely, finding yourself in the “Friends of USA” club will also give privileges in these areas.

The financial and monetary part is also likely, collectively referred to in working discussions as “Mar-a-Lago Accord”, which we have only speculation for so far. A significant part of all this will probably happen until July 9.

Indeed, we live in interesting times when more than in previous decades can happen in a few months. So far, we only met the “first notes” of the new American overture.

Author: Marcin Mrowiec, chief economist Grant Thornton