The OTHER kind of economic stimulus
EDITOR'S NOTE
We've been debating Fed rate cuts ad nauseum this week. Which is a good reminder of just how much oxygen central banks take up these days when it comes to talking about the economy.
This is my gripe with Europe--in a vacuum of other pro-growth policies, everyone always looks to the European Central Bank to pull more extreme measures out of its hat to support the euro zone economy. And that ends up distorting financial markets more than helping them (to wit: the comically low bond yields on European debt).
In any case, one thing the U.S. has at least been doing is unveiling a raft of pro-growth policy measures over the last few years that aren't coming from the central bank.
Case in point today: the U.S.-Mexico-Canada Agreement. Politico reports this "new Nafta" trade agreement is stalled in Congress because the 2020 Democratic presidential candidates are largely coming out against it.
President Trump is on his way to Wisconsin this afternoon to visit a Lockheed Martin subsidiary where he'll repeat his push for passage of the trade deal. Larry Kudlow has been pounding the table, including in our interview this week, for passage of the deal, which he says could add as much as a half-point annually to U.S. GDP.
That may sound fanciful, but the International Trade Commission ran the numbers a few months ago and said the deal would likely add 0.35 percentage-points annually to GDP. That's mainly through (1), "provisions that reduce policy uncertainty about digital trade," and (2), stiffer rules of origin on the auto sector.
(The digital trade provisions are expected to "promote trade, improve protection for source code and algorithms, and foster innovation." Sectors expected to benefit the most include e-commerce and express delivery firms, according to the ITC, but nearly all sectors would benefit--including agriculture--as they become more tech-intensive.)
The reasons for opposition to this deal run the gamut from wanting more environmental protections (Harris) to saying it would "help the pharmaceutical industry enormously" (Warren), or that it wouldn't help working-class Americans (Harris, Warren, Sanders, et al).
To be clear, this deal does not appear to unwind Nafta in any meaningful sense, except with regard to the auto industry. If the American public wants to go further in restoring the pre-1994 landscape, the bill's passage seems unlikely.
But if growth is the goal, it's hard to overlook a trade deal that would boost GDP by a third of a percentage-point annually--the kind of boost plenty of other countries right now would be clamoring for.
See you at 1 p.m.!
Kelly
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