After the U.S. tax changed to land, the short-term trade deficit soared, the medium-term initiative to set up trade barriers, long-term manufacturing products for shrinking demand will increase the probability of global trade conflicts. To avoid ' trade wars ' or ' currency wars ', the progress of structural reforms in countries and the synergy of global economic recovery are crucial. The resonance of protectionism and the resurgence of geopolitical risk in the 2018 is worthy of investors ' vigilance.
In the end of 2017, Trump finally ushered in the ruling of the year's most important achievements-the signing of the Tax and Employment Act. Despite this ' ink ', trade statistics released in early 2018 or will Trump's ' resisting ' measures to accelerate the agenda. We believe that tax cuts may be the catalyst for Trump's foreign economic policy of the 2018, and the probability of a ' trade war ' that has been suspended in mid-air in 2017 has risen. No, the U.S. Trade Representative's office announced 22nd that, with President Trump's approval, it would use the dusty, unilateral trade relief tool ' 201 survey ' to impose ' protective tariffs ' on imported washing machines and photovoltaic products.
With a steady recovery in the US economy, the tax cuts and employment bill, which will boost consumption and investment demand and further stimulate economic growth, are expected to climb in the short term, leading to a ' trade war '. The key to the Trump tax reform is a drastic and permanent reduction in corporate taxes, a modest adjustment of taxes, which will directly increase the discretionary income of the private sector and stimulate consumer spending, on the other hand, the reduction in corporate income tax rates will also boost investment demand. Historically, the Reagan administration and the Bush administration's tax cuts were quick to boost the U.S. economy, and aggregate demand expansion also boosted imports in the short term. In the case of the Bush tax, although the economic growth momentum after the tax cut was less than that of the Reagan tax change, in the short term U.S. imports rose from 21.8% in December 2001 to 51.5% in December 2002, while the trade deficit rose from 17.5% to 19.6% in the same period. In terms of regional distribution, the United States ' main trading partner is also the most important source of the new deficit, and the U.S. trade deficit with the Pacific Rim and Europe has risen from 19.8% and 21.7% respectively to 56.8% and 134.6% per cent in the year since December 2001. It can be expected that in the context of a global synergy recovery, Trump tax reform will stimulate the U.S. imports in the short term, the U.S. and the main trading partner surplus is expected to expand rapidly, which in the short term will increase the pressure of ' trade war '.
The Trump tax reform is only preparing for a return to manufacturing, with the reality that the relative competitiveness of US manufacturing is falling, the real manufacturing investment is likely to depend on a ' trade war ' and ' currency war ' push. The Trump tax changes the U.S. corporate tax rate back to the general level of the developed countries, which will increase corporate investment returns, a positive effect on capital inflows. But from the microscopic investment decision, the tax rate is only one of the factors that affect the investment of enterprises. Historically, the surplus countries (Germany, Japan) to exert currency appreciation pressure and the establishment of trade barriers is an important step to promote the return of enterprises, the 80 's ' Plaza agreement ' and the auto industry restricted exports, set up factories in the United States is a typical case. Accordingly, we believe that on the one hand, the return of capital will bring a certain amount of pressure on the appreciation of the dollar, which will weaken the relative competitiveness of U.S. companies, contrary to the target of manufacturing return, so in the U.S. monetary policy normalization and sustained economic recovery in the context of the United States, the main deficit source of the currency revaluation pressure To keep the dollar relatively stable or even slightly devalued. On the other hand, the relative competitiveness of the U.S. manufacturing industry may be the reason for Trump's initiative to establish trade barriers. Since the financial crisis, U.S. manufacturing has long been constrained by lower labour productivity and an ageing infrastructure. Since 2009, Mr Obama has launched a series of strategies and policies aimed at boosting manufacturing, but the return of manufacturing has yet to be scaled back. The proportion of high-end manufacturing in the United States has declined since 2008, while the share of Germany and Japan has remained high or even rising. In terms of relative labor productivity, compared with other major manufacturing countries, the relative prices of American industrial products have been raised after the financial crisis. Nber's research shows that labor productivity declines are a major factor in the relative price leveling or even slowing of U.S. manufacturing. So while the Trump tax reform is helping to reverse the flow of money, there are still questions about whether these funds can be converted into manufacturing investment. Historical data show a 2-3-year lag between the decline in US corporate income tax and the growth of private fixed capital formation. In this case, the Trump government may, through the ' Trade war ' and ' currency war ', reverse the relative disadvantage of U.S. manufacturing competitiveness and stimulate direct investment in the United States.
Trump tax reform, the focus is to reduce corporate tax to attract the return of manufacturing, but the tax reforms are more favorable to the rich people with low propensity to produce goods. In the long run, if more manufacturing companies return to the US, the weakening of relative demand will push up the export pressure on manufactured goods and offer an additional incentive for ' us to make ' an overseas share or a trade war. According to a study by the International Monetary Fund on the distribution of U.S. tax reform, as incomes grew, the share of American social spending on primary and manufacturing products fell rapidly, with the average service consumption expenditure of the top 20 per cent of the highest income, in particular, as high as 75%. According to Wid.world's study, in 2014, the income share of America's top 1% adults was more than 20%, accounting for about twice times more than 1980 years. In Europe, the index rose only from 10% to 12% in the same period. From the income share of the top 10% adults in the United States, the index reached 47% in 2014, nearly 4 times times the share of 50% adults after income, and almost all of its share grew from the contributions of the top 1% adults. With the widening income gap, Trump's tax reform and corporate tax cuts, in particular the abolition of estate taxes and the ' Alternative Minimum tax ', continue to benefit the high-income groups, which will keep the middle class and the low-income group's share of national income falling. Although the decline in labour productivity is also an important reason for the decline in relative prices and consumption of manufactured goods, the ' Matthew effect ' of widening the gap between rich and poor is eroding the basis of long-term growth in demand for manufactured goods. If the level of income polarization continues to intensify, as the world's largest consumer market, the shrinking US demand means that the return of ' US manufacturing ' has to look more outward-oriented, paving the way for a relative glut of global manufacturing supplies and possible trade conflicts.
To sum up, after the U.S. tax changed to land, the short-term trade deficit surge, the medium-term initiative to set up trade barriers, long-term manufacturing products for shrinking demand will increase the probability of global trade conflicts. To avoid ' trade wars ' or ' currency wars ', the progress of structural reforms in countries and the synergy of global economic recovery are crucial. The resonance of protectionism and the resurgence of geopolitical risk in the 2018 is worthy of investors ' vigilance.