The boomerang returns: trade wars to bankrupt Americans

© AFP 2018 / Robyn Eskalatory a homeless encampment in Anaheim, California. 25 January 2018The boomerang returns: trade wars to bankrupt Americans© AFP 2018 / Robyn Beck

Moody’s warned that the US credit rating may be reduced. This figure for decades at the highest level, and only in 2011, the Agency Standard & Poor’s downgraded it one notch amid a global credit crisis. Why Moody’s made this statement and that analysts believe the main threat to the American economy — in the material RIA Novosti.

The crisis in the solstice

Like in the US now are all very good. GDP is growing with a record among developed countries, the rate in the second quarter by 4.2% compared to last year.

Unemployment is 3.7%, the lowest since 1969. And by the end of next year is expected to decline to three percent. However, all this makes the experts more concern than optimism.

As noted in my review of the American research Institute of the economic cycle (ECRI), the last two times such a combination of indicators observed in 2001 and in December 2007. In both cases, less than a year, then burst into large-scale crises, «the collapse of the dotcom» and «the great recession», respectively.

«The best indicator of impending recession — the unemployment rate below 4.5%, — explains the chief economist at Moody’s Analytics mark Zandi. — This mark can be considered a situation of full employment. If unemployment remains at this level, increasing labor cost, the profitability of corporations reduced, inflation increases, the fed raises interest rates, and eventually inhibited economic growth.»

Since the fall of unemployment below 4.5% before the recession is an average of three years, calculated Zandi. On this basis, he predicts that the next economic crisis in the United States will begin «the day of the summer solstice June 20, 2020.»

The limit inequality

On the approach of the next global crisis, economists say more often. Disputes go only that it would be the trigger a new collapse. According to analysts Moody’s, now the main risk to the us economy — stratification.

The report, «the Government of the United States: rising income inequality is likely to affect credit rating» Agency experts noted: since 1995 the most affluent segments of the U.S. population on average, has increased his fortune by almost 200%.

And the poorest 40% of the impoverished even more. «After the global financial crisis saw a particularly sharp increase in levels of inequality in wealth and income», — the document says.

Experts Moody’s is not the first pointed to the problem of inequality in the United States. In August the UN special envoy on poverty and human rights Philip Al has presented a report according to which about 40 million Americans today live in poverty, with 18.5 million «extreme poverty», and 5.3 million — «in absolute poverty, characteristic of most underdeveloped countries of the third world.»

«High rates of child poverty mean that this social disease to be passed from generation to generation, and the American dream turn into the American illusion. Equality of opportunity, which is so valued in theory, in practice is a myth, not only for minorities and women, but for many white middle-class,» says Al.

In Washington, he called the report «incorrect, inflammatory and irresponsible». However, the findings of Al soon confirmed by analysts from the «Oxford Economics» examine the spending of U.S. households.

They found that 60% of US citizens are actually working to maintain their traditional way of life, without any prospects for its improvement. «Most Americans today live from paycheck to paycheck,» stated study leader Gregory Daco, head of the Department of the US economy at Oxford.

Hit the brakes

«A trade war with China will further exacerbate the problem of inequality in the U.S. and will accelerate new recession,» — said mark Zandi.

The main victims have been identified. First of all, it’s the American automakers. John Hinrichs, head of global operations of Ford, speaking to the workers in Michigan on Monday, complained that due to the introduction of tramp steel tariffs in the United States has become the most expensive in the world.

Taking advantage of the disappearance of competitors, the American steelmakers have raised prices by 28% in six months. As a result, the steel is now worth about $ 260 per ton more expensive than in China, and Ford because of the high cost of the metal has lost about a billion dollars in profits.

«Trump introduced tariffs on imported aluminium and steel added about $ 240 to the cost of production of the new car in the U.S.,» estimated senior economist of the analytical Agency IHS, Markit Peter Nagel.

A trade war with Beijing, in his opinion, will cost Washington more expensive because in China, American manufacturers purchase many components — from tires and wheels to filters and wiper blades.

According to estimates Nagel, motorists in the United States «will see a price increase of 1.3 thousand dollars in the mass market segment and 5.8 thousands of dollars in luxury».

Experts of the Center for automotive research (CAR) predicts that because of a trade war with China car sales in the US in the foreseeable future will decline by about two million units per year. This will lead to the elimination of 715 thousand jobs and reduce GDP by 62 billion dollars.

Milk river

From a trade war and suffered American farmers. Producers of soybeans and corn, have lost their Chinese customers, Washington has already allocated $ 12 billion of aid.

Now turn the Milkmen. The gap trump trade agreements with Canada and Mexico, deprived them of their markets for more than three billion dollars. China last year bought U.S. dairy products to 576 million dollars, and now stopped buying.

Moreover, the U.S. dairy producers faced stiff competition from European counterparts: due to the Russian food counter-sanctions they began to look for new markets, severely squeezing Americans in many countries.

In the end, the overproduction of milk in the US this year has exceeded eight million metric tons, forcing farmers to just dump a valuable product on earth.

Since December of last year, just in Wisconsin, more than 400 dairy farms disposed of a total of 160 million tons of milk, not being able to sell it.

According to estimates of the Council on exports of dairy products USA (USDEC), for the new Chinese tariffs, American milk producers will lose $ 16.6 billion dollars in the next five years.

From Economics to politics

Due to losses caused by trade wars, thousands of companies will be forced in the coming months to lay off employees and reduce wages. This will further exacerbate the problem of inequality in the country.

As a result, according to Moody’s, Washington will soon have to dramatically increase the support of the American poor at the expense of the state budget. Such social programs could cost trillions of dollars.

«To support a household, additional expenses, and it is unlikely that they kompensiruet any measures to increase state revenues after the recent cuts in taxes,» — said the Agency.

Experts stress that «Inequality increases simultaneously with the growth of social security costs related to aging population and higher interest payments on the national debt».

According to analysts ‘ estimates, just for the interest on the public debt, Washington 2023 will have to spend more money than the entire defense budget. If the government continue to ignore the problem of inequality and poverty, economic hardship, threaten political problems for the White house.

«Rising inequality was an important issue for voters during presidential elections in 2016, the report says Moody’s. — If the problem does not give enough attention to the political risks will rise, and the societal landscape in the US will become even less predictable.»