Do trade deficits matter?

Posted by: Paul Donovan

06 Mar 2019
  • US trade data is due and is expected to show a further increase in the size of the deficit. How could this happen when the US has put in place trade taxes? It could happen because the taxes on trade and equities are an 18th century policy that does not work well in the 21st century (it did not work so well in the 18th century, either).
  • Does a deficit matter? In one sense it is a signal of the US enjoying a higher standard of living than would otherwise be the case. In another sense it is a symptom of the rising trend of government debt, which is not especially sustainable.
  • Australian economic growth was weaker than expected, slowing into the end of the year. The bursting of the housing bubble is not helping the consumer or construction spending. The central bank has kept policy unchanged.
  • The UK has a vote in the House of Lords on the interminably tedious exit from the EU. The vote raises the option of the UK staying in a customs union with the EU. At the moment, this is just a warm-up for next week's House of Commons votes on various options.

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