Next year there will be presidential elections in the United States and the first studies indicate that the next president of that country will belong to the Democratic Party. It is still too early to believe that this will be the definitive result, however, it will be very useful to carry out an exercise that evaluates the implications that this result could have on the behavior of US foreign trade and on the commercial war.
When Trump was declared the winner in the previous electoral process, the media conveyed a sense of panic and fear that filled all those who frequently address political issues with fear. In reality, Trump reflects the concern of Americans about many phenomena that have been occurring in the United States and that other candidates failed to address properly.
Trump arrived at the White House to set new guidelines on the presidential agenda, not only for his government but also for successive administrations. From now on, the topics related to the North American trade deficit will be the object of attention of the next presidents of that nation for the purposes of making the corresponding decisions until the size of the same is substantially reduced. Failure to do so means losing valuable political capital and giving opponents the opportunity to displace them from power.
On the other hand, Trump raises a milestone in US foreign policy : China represents a danger to the interests of the United States. So, from then on, the decisions taken by both the executive and legislative branches of that country and that are linked to relations with China will be carefully reviewed in order not to allow the Asian country to increase its influence on The North American economy
As we know, the Democrats focus their attention on social issues, human rights, wealth distribution, etc ; while they sometimes neglect the points related to economic growth and wealth generation. However, after the Reagan Administration there was a process of ideological renewal in the Democratic Party that, although it does not abandon its fundamental principles, gives much greater importance to economic events and also understands that, on occasion, intervention is necessary Military in other countries.
Under a Democratic administration, the commercial war goes to the background and political projects that try to pass laws that increase taxes on the biggest fortunes become important. However, this does not mean that the tariff increases adopted during the Trump Administration are eliminated or that the effort to reduce the trade deficit ceases.
The ideological line of the Democratic Party needs to clearly define how to deal with the trade deficit problem. This is a process that must be happening at this time and that would take all of 2019 and part of 2020. It is necessary that the Democratic presidential candidate show precise lines on how to face the problem of American foreign trade from the approach of that party . Although it is probable that said candidate will present himself to the contest showing only general lines and then establish the specific norms in the first two years of government and implement measures in the last two years that remain under that administration.
The Democratic Party, as far as I know, has not issued any pronouncement about what happens with respect to the US trade deficit, has not given it the corresponding importance and, worse still, has not taken a position on a reality that could threaten welfare of the Americans. Indeed, the Democrats have not even tried to decouple the idea introduced by the Republicans that the welfare of Americans depends on the magnitude of the trade deficit. It is clear that the Democratic obsession to increase the tax rate on gigantic fortunes has prevented the party from showing us the ideology that will allow us to face today's problems.
That is why the economic actors of the United States and the world must wait for the Democrats to study and understand the phenomenon of the trade deficit in order to establish scenarios that allow us to predict the most important events in the area of international trade that could be occurring during the next years.
Despite the ideological lag that the Democratic Party shows us, we must note that its political influence is notorious and that its followers are leaders in human rights, inequality and exclusion; but that his eternal criticism of capitalism takes away space for the production of useful ideas to address the problems of today.
By the time the Democratic Party obtains a hypothetical victory in the next presidential elections , China will already be in recession or it will be very close to it, while the rest of the world will see how negative expectations lead to the pit the value of most important economic variables. We believe that, under these circumstances, the Democratic administration will repeatedly disclose that there will be no more tariff increases. However, it will carry out the necessary actions to conclude the political agreements that allow reducing the overvaluation of the dollar without affecting the functioning of the financial system. This means that China's difficulty in exporting to the United States will continue to increase. That is, the danger of a global economic depression will not disappear with Trump's departure from the White House.
That is why, in view of what has been mentioned so far, we can affirm that the US electoral process will not influence the commercial war; This will continue regardless of who is the next president of the United States. Therefore, we can only expect a change in the trade deficit correction mechanism, where the application of tariff increases is replaced by a gradual reduction in the dollar's overvaluation.
So, if there are very high chances that the commercial war will continue over the next few years, we will have the chances of a global economic depression still significant. Here we propose that the threat of global economic depression will be fought by a group of countries through the application of subsidies to companies; in this way the global economic debacle would only become a global economic recession, but never a global economic depression.
Subsidies to companies are tools of economic incentive of a rather heterodox nature and that has been applied previously in several nations under radically different contexts.
This tool emerges as a feasible alternative since the economy that urgently needs to face the effects of the trade war , that is, China, lacks mechanisms, tools and institutions that allow it to adequately address such eventuality.
Indeed, the fiscal and monetary policies of the Asian country lack autonomy and effectiveness; they simply react to what happens with trade policy, therefore, they cannot be used to combat events of an unfavorable trade policy.
On the other hand, we do not believe that the necessary political conditions are in place for the multilateral organizations to provide economic assistance to China since the statutes of these organizations will not conform to the requirements and conditions that the Chinese nomenclature will want to impose. While it is true that these organizations played a leading role during the Asian crisis of the late 1990s, we think that the conditions prevailing today are different.
Finally, the depreciation of the currency will be the tool preferred by the rulers of the different nations to face the consequences of the commercial war. However, this will be a mechanism lacks effectiveness or, at best lso cases, a number of mitigating the problems that arise.
We believe that the granting of subsidies to companies will be the instrument that will prevent the massive closure of companies and that several nations will adopt as a result of the commercial war. Obviously, not all countries have the power to implement a mechanism for distributing subsidies to companies, nor are all companies in a position to receive them. That is to say, given that China is the axis from which the hypothetical global economic depression will begin, it is absolutely essential that it install such a mechanism for granting subsidies to companies, especially when it has abundant financial resources for this purpose. For this, it must be taken into account that the distribution of these subsidies cannot be massive but selective; where one of the most important selection criteria should be the size of the volume of imports made annually by each company. This criterion creates a bias that harms the companies that serve the domestic market, so it would require implementing some compensatory mechanism that annuls said bias.
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Other nations, like China, will not be adequately prepared to properly deal with the trade war, so they could be taking measures similar to granting subsidies to companies to stop the spread of the negative effects of the trade war. However, the main focus of the spread of the world recession or world depression will be China. That is, the measures taken by countries that have strong commercial ties with China will not help if China decides not to apply subsidies to its companies to stop the hypothetical mass closure of companies.
In any case, the first shock that nations will receive as a result of the trade war, regardless of their degree of connection with China, will be: currency depreciation, product contraction both through lower aggregate demand and lower aggregate supply ; inflation, specifically cost inflation; contraction of fiscal revenues and fiscal expenditure; reduction of sources of fiscal financing; reduction of internal consumption; unemployment. This is an adjustment process that involves the destruction of a part of the global production chains because they are no longer useful. Under this context, it is necessary to rethink global production schemes based on new ideas and new principles. Until this new global production scheme appears, most of the planet's economies could be submerged in a kind of perennial stagnation, of non-economic growth, of mere survival.
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