'Trumponomics' Unable to Deal With Core Problem of US Economy

The economic strategy of US president-elect Donald Trump has a number of severe flaws, prominent economist and research fellow Stephen Roach wrote in an article for Project Syndicate.

Donald Trump wants to restore the economy in a country with a shortfall of saving. This will lead to a further decrease in national saving and widening of the national trade gap.

"That dynamic unmasks the Achilles’ heel of Trumponomics: a blatant protectionist bias that collides head-on with America’s inescapable reliance on foreign saving and trade deficits to sustain economic growth," Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm's chief economist, is a senior fellow at Yale University's Jackson Institute of Global Affairs, pointed out.

According to the economist, the new US presidential administration will inherit an already troubled economy. In particular, there is a shortage in savings. In mid-2016, the net national saving rate – the sum of business, household and government saving – stood at 2.4 percent of national income. This is far short of the average of 6.3 percent that was seen over the three final decades in the 20th century, according to the article.

This trend explains the "pernicious trade deficits" that Donald Trump has been criticizing.

Amid the lack of savings and the need to grow, the US must import surplus saving from abroad, attracting foreign capital by running current-account and trade deficits.

"The numbers bear this out: since 2000, when national saving fell well below trend, the current-account deficit has widened to an average of 3.8 percent of GDP – nearly four times the one percent gap from 1970 to 1999. Similarly, the net export deficit – the broadest measure of a country’s trade imbalance – has been 4 percent of GDP since 2000, versus an average of 1.1 percent over the final three decades of the twentieth century," Roach wrote.

According to the economist, "Trumponomics" is fixated on such specific sources of the trade deficit as China and Mexico while ignoring the fact that these deficits are signs of the saving problem in the US economy.

"Presume for the moment that the US closes down trade with China and Mexico […] through a combination of tariffs and other protectionist measures. Without addressing America’s chronic saving shortage, the Chinese and Mexican components of the trade deficit would simply be redistributed to other countries. […] In short, there is no bilateral fix for a multilateral problem," the article read.

Roach underscored that an attempt to increase national saving via protectionism and other conservative measures is "one of the most glaring disconnects of Trumponomics."

Moreover, he suggested that in the coming future the US will become even more dependent on surplus saving from abroad.

"Protectionism, anemic saving, and deficit spending make for an especially toxic cocktail. Under Trumponomics, it will be exceedingly difficult to make America great again," the author concluded.