The United States, with its aggressive aid measures against the pandemic and the rapid distribution of vaccines, is boosting the world economy, acting as source of demand in all corners of the planet.
The government has spent billions, creating a booming demand in America.
However, as the new trade data shows, a significant part of this money is leaking abroad and it goes to imported goods, in what economists call “tax leak“.
The World Bank has improved global growth prospects for this year. AP Photo / Andrew Harnik, File.
Ultimately, the prospects for the US economy will depend on the ability of other countries to take over as drivers of global demand in the coming months, a prospect that remains uncertain.
The United States is buying a lot more things abroad as its stimulus-driven economy ramps up, while the rest of the world is still has not caught up buying more US exports.
As a result, the trade deficit was $ 68.9 billion in April, down from $ 75 billion in March, but well above the levels of about $ 45 billion per month immediately before the pandemic. .
People are spending their stimulus money on imported furniture, appliances, and other goods.
One of the effects is that the rest of the world is acting as a pressure valve for inflationary forces that are accumulating within US borders.
If you think gasoline and lumber prices are high now, imagine that the slow-growing economies of Europe and Japan will rebound at the same breakneck pace as those of the United States.
“Tax leakage is unavoidable“said Maurice Obstfeld, a professor at the University of California at Berkeley and former chief economist at the International Monetary Fund.
“It is desirable insofar as it will moderate inflationary pressures a bit. And it is desirable insofar as, to some extent, it helps stimulate growth in the rest of the world, some of which is helping us again.”
It reflects a difficult geoeconomic needle that the United States is trying to thread.
Best of all, if the rest of the world joins the party and is able to drive global demand, especially once US stimulus dollars have largely been depleted.
But if that resurgence is too fast and stronge, will only aggravate inflation problems already evident in many markets.
Also, some of the most effective tools have to do with global vaccine distribution, not economic policy.
The success of the vaccination would help the supply and demand, both for physical goods as well as tourism and other services, to return to their normal course.
The United States tends to run a large trade surplus in services such as software, Hollywood movies, and banking.
But the largest service export sector before the pandemic was that of international travel.
In the mathematics of the global economy, a foreign tourist staying in the United States is essentially buying a exportation of services American.
Travel exports were only $ 18 billion in the first four months of 2021, below the 67 billion dollars for the same period of 2019.
Meanwhile, American consumers have in abundance shifted their spending from services to goods.
In the first four months of the year, imports of consumer goods were a 29% higher than in 2020, a jump of $ 57 billion.
“The only thing people could consume were goods,” said Constance Hunter, chief economist at KPMG.
“You couldn’t have a wedding; you couldn’t go to a baseball game.
So what did people buy? They bought goods, and that is a much more global market than services. “
In effect, the United States and China are acting as drivers of the global economy, while most of the rest of the world is further behind in recovering from the pandemic.
In the IMF’s World Economic Outlook, released in April, the United States’ GDP in 2021 was forecast to be 3% above its 2019 level, while China was forecast to be 11% above its 2019 level. .
However, the euro area and Japan are on track to have economies 2% smaller than in 2019, and it is expected that Great Britain, Canada, Brazil and Mexico are also in negative territory.
That’s unfortunate for people in those places experiencing slow recoveries, but it’s probably helping to prevent supply shortages in many sectors from getting even worse.
The semiconductor shortage has already slowed car production; the shortage of building materials has suppressed the construction of houses; and the shortage of shipping containers has skyrocketed the prices of shipping goods across the oceans.
“If everyone was stimulating simultaneously, and everyone was enjoying peak growth simultaneously, you could see a increased congestion“said Nathan Sheets, chief economist at PGIM Fixed Income and a former senior international economist at the Federal Reserve and the US Treasury.
One promising possibility would be for the witness of economic growth to gradually pass around the world, having started in 2020 in China, continuing through the first part of 2021 in the United States, and then elsewhere as stimulus dollars American fade away.
That could help the United States avoid a post-stimulus economic hangover.
“If Europe lags us a quarter or two, and emerging markets lag behind Europe, maybe we could achieve a staggered global recovery where the growth we achieve is a good thing, without putting too much pressure on the supply of a single time, “Sheets said.
The slow rate of vaccination in many parts of the world is a risk for everyone.
It appears to be slowing production significantly, contributing to the inflation problem in the United States; See, for example, a recent COVID outbreak at a Taiwanese chip factory that halted production of an already in short supply.
The IMF recently published a study showing that an ambitious vaccination plan could pay off big.
Reaching 40% vaccination rates worldwide would inject the equivalent of $ 9 trillion into the global economy by allowing a more rapid return to normal trade.
The 40% of profitss would go to advanced economies such as the United States and Europe.
This means that the huge trade deficits of the last two months could disappear in the coming months, but only if the whole world is able to stay healthy, with growth accelerating as well.
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