Is Trump right to "spray"? The biggest flaw in U.S. GDP may really be attributed to the strong dollar......

Finance Associated Press

2024-04-26 10:30Published on the official account of Cailianshe under Shanghai Poster Industry Group

Finance Associated Press, April 26 (edited by Xiaoxiang) The latest U.S. first-quarter GDP data released on Thursday may give Trump more confidence to show off: "No one understands the U.S. economy better than me"......

Some market analysts said that the overnight first-quarter report card of the U.S. economy proved at least that former U.S. President Trump was right about one thing: a strong dollar is causing U.S. consumption to increasingly shift to imports, while U.S. domestic exports barely grow. International trade dynamics can be said to be the biggest "culprit" behind the US GDP data in the first quarter fell sharply short of expectations.

According to data from the Bureau of Economic Analysis of the U.S. Department of Commerce, real GDP in the United States grew by 1.6% annualized quarter-on-quarter in the first quarter, far less than the market expectation of 2.5%, and a sharp slowdown from 3.4% in the fourth quarter of last year. The surprise in economic growth was sharply lower than expected, mainly reflecting a slowdown in consumption growth and trade data that turned into a drag on growth.

A closer look at the sub-components of GDP shows that net exports of goods and services in the United States in the first quarter dragged down GDP growth by as much as 0.9 percentage points, compared with a contribution of 0.3 percentage points in the previous quarter. This is mainly due to the rising trade deficit in goods and services.

(Source: China Merchants Securities)

According to U.S. trade data for February, released earlier this month, the U.S. trade deficit rose to $68.9 billion for the month, up from $67.6 billion in January.

In this regard, Felix Schmidt, an economist at Berenberg Bank, said, "Behind the sharp slowdown in the US economy in the first quarter, net exports dragged down the overall growth by nearly 0.9 percentage points." The weakness in export growth can be attributed to weak global demand and a strong US dollar. Even if the impact of quarterly fluctuations in the data is taken out, import growth looks strong. ”

"Part of the reason why GDP numbers are so weak is that trade is dragging its feet. Net exports dragged down the overall data by 0.86 percentage points. Without this drag, the overall figure would have been largely in line with market expectations. Tim Quinlan, senior economist at Wells Fargo, said.

Are trade issues largely affected by the US dollar exchange rate?

And it is clear that behind the deepening of the US trade deficit, the impact of a strong dollar cannot be ignored.

Steven Blitz, chief U.S. economist at TS Lombard, hit the nail on the head, saying, "The problem is that the strong dollar is shifting capital equipment purchases away from domestic (US) manufacturers to foreign producers, which is contrary to government policy efforts (taxes, tariffs and spending)." ”

The U.S. dollar is the best-performing major global currency so far in 2024, according to industry statistics, and continues to move higher as expectations of the Federal Reserve's interest rate cut fade. The broad dollar exchange rate index has risen about 4.25% so far this year, and the dollar has surged by 18% cumulatively compared to 2021, making foreign goods and services cheaper for U.S. businesses and consumers and prompting them to abandon domestic suppliers.

While U.S. exports are still growing slightly, new domestic consumption is increasingly benefiting foreign suppliers and reducing demand for domestic suppliers' products to some extent.

What is quite interesting is that the American politician who has been "shouting" the most loudly about the exchange rate issue recently is Trump, who is running for the presidency!

At one point earlier this week, Mr. Trump took aim at Japan when he met with former Japanese Prime Minister Taro Aso. He was outspoken in his criticism of the yen's recent depreciation, saying "this is a disaster for the United States." He also claimed that the sharp surge in the dollar against the yen would hurt U.S. manufacturing and companies and force them to move factories overseas.

It is reported that Trump is considering a plan for how to devalue the dollar if he wins the election in November. Trump claims that only a weaker dollar can solve the U.S. trade deficit with China, Japan and other countries, but this view has been widely criticized by experts because a weaker dollar could also lead to inflation and higher prices, which would mean more pressure on household spending for American consumers.

Of course, some industry insiders also said that Trump's criticism of the exchange rate issue may also have a certain political color, and the position in this regard is largely "the butt decides the head".

Derek Halpenny, head of global market research at MUFG Bank, said, "Trump's goal is to criticize Biden's policies and blame Biden for the level of the dollar, and if Trump is president now, maybe he will use it as an illustration of American power." ”

In any case, an overly strong dollar is indeed a double-edged sword in itself – it may help control inflation domestically, but it will also have a negative impact on the trade balance. According to Derek Halpenny, "political factors may now be entering the dollar debate, which could limit the upside of the dollar, and as the dollar exchange rate gets higher, speculative purchases of the dollar's purchasing power will certainly decrease." ”

(Finance Associated Press Xiaoxiang)

View original image 188K

• 

•