The Challenging Week Ahead

The developments over the last few days, including the strident tones of the inauguration speech,  the dispute of the number that attended the inauguration, and the nearly incoherent speech to the CIA may be a small hint to investors of the unpredictable nature of the new US President. The unorthodox style and rhetoric should not distract from the necessary focus on policy. Ultimately, public policies and private sector behavior, not speeches or wishes, drive interest rates, equities, and currencies. Investors will have to get accustomed to the new Administration’s way of conducting itself and communicating.  

With broad strokes, and recognizing some contradictory impulses, at this juncture we suggest four main elements of Trump’s economic policy.  

The first is re-writing trade deals. This is a central plank. It is one of the key elements of Trump’s foreign policy and job creation plans. The potential of TPP being re-purposed as a bilateral free-trade agreement between the US and Japan remains possible but unlikely.  

The priority appears to be to re-negotiate NAFTA.  Few people are opposed to reviewing old agreements. No doubt it can be updated; it is 23 years old. Intellectual property rights have evolved, the Internet not only exists but is an important distribution channel for goods, services, and information, there are new tax and accounting rules, and the like. While modernizing old agreement is one thing, changing the essential thrust (reduced barriers to trade, in the North American continent) is quite a different thing. It is not clear to many whether Trump’s rhetoric is part of the “Art of the Deal,” or whether it is a principled position.   

Like his predecessors, Trump also talks about enforcing existing agreements. Sometimes there have been trade disputes among NAFTA countries. That is an important thing that is often overlooked about trade agreements. They provide a conflict resolution mechanism; invaluable for resolving and containing disputes. It is like a penalty in a football game or a foul in basketball. The violation of the rules is incorporated into the rules themselves.   

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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