With Donald Trump’s announcement that Oklahoma Attorney General Scott Pruitt is to head the EPA, perhaps the present administration’s war on fossil fuels is about to end. Yesterday, the stock market spiked almost 300 points (from the Manhattan Contrarian).
Now I for one am very hopeful that Trump will succeed in giving a real and immediate boost to the economy. As just one example, the announcement today of Oklahoma Attorney General Scott Pruitt to head EPA is a terrific signal that the war on fossil fuels is about to end and the energy economy unleashed. And the stock market took off and went up almost 300 points.
But what does this mean for the trade deficit? Of course a rapidly expanding U.S. economy means that the trade deficit is likely to increase, and maybe by a lot. Here is a post on the subject from yesterday by Mickey Levy of Berenberg Capital Markets.
For now, the expectation is that the boost in economic activity from likely tax reform, infrastructure spending and an easing of burdensome regulations will stimulate stronger economic growth while increasing the demand for foreign goods and widening the US foreign trade deficit.
And really, if you think about it, Levy is highly likely to be right. An expanding U.S. economy means more demand by us for imports, and an expanding world economy means more need by them for a growing money supply. Month by month the trade deficit could bounce up or down, but over a time horizon of quarters or years it will be highly likely to increase, and maybe by a lot.
Relax! This is a good thing!