Research Team at Nomura explains that they do not know what shape the new administration's economic policies are likely to take, but they look at a paper published in September 2016 by Peter Navarro, President Trump's aide on trade, and Wilbur Ross, the president's nominee for commerce secretary, to see what it says about the likely direction of US economic policy, from a Japanese perspective.
Key Quotes
“The authors of this paper appear to view US companies' flight overseas as the root cause of the problems affecting the US economy. On this basis, we think that the new US administration will focus on stimulating domestic capital investment by easing regulations, lowering corporate taxation rates, amending WTO rules, preventing currency manipulation by countries with which it trades, correcting unfair trade practices, and revising free trade agreements. While the two authors regard infrastructure investment and reductions in personal income tax as important, they do not see them as being core issues, and we would not be surprised if the new administration does not adopt a particularly aggressive stance in these two areas.”
“Policies aimed at weakening the US dollar would be likely to depress the inflow of funds into the US and thus cause interest rates to rise. As this would probably have the effect of depressing domestic capital investment, seen as a key issue, we think the new administration is unlikely to implement such policies. Instead, we expect it to put pressure on specific countries that it thinks are manipulating their currencies. Vice President Mike Pence and Deputy Prime Minister Taro Aso have established a framework for dialog on economic issues, and while there is now less likelihood that Japan will be the subject of head-on criticism from President Trump, there is no guarantee that Japan, which is manipulating long-term interest rates, will not come under criticism. If the US were to move to a policy aimed at weakening the dollar across the board, we think this would be because, despite reductions in corporate taxation rates, domestic capital investment was still not picking up.”
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