21 December 2016 (01:35 UTC-07 Tango 06) 01 Dey 1395/21 Rabi ‘al-Awwal 1438/23 Geng Zi 4714

“The timing of the abrupt asset-price movements—coming within days of the U.S. election—is the key clue about what moved markets. The election of Donald Trump as president, coupled with continuing Republican control of the Congress, ended six years of divided U.S. government.

………More rapidly rising U.S. interest rates signal further dollar appreciation. Tax incentives for U.S. corporation to repatriate their past profits held abroad, which some estimate at $2.5 trillion, could also push the dollar up. Given faster demand growth, the outcome will be a widening U.S. current account deficit, that is, more borrowing from abroad. Some of it will possibly finance a growing Federal fiscal deficit, depending on the precise features of the U.S. fiscal package, the extent to which it is paid for by budget cuts elsewhere, the path of government borrowing rates, and the economy’s growth response.

……..If sharp exchange rate shifts and growing global imbalances follow the U.S. policy regime change, protectionist pressures become a major risk…….it is most likely that emerging market economies are the main targets for higher trade barriers erected by advanced economies.

Governments should therefore keep in mind that protection is likely to be counterproductive at home……In an environment of sharply divergent policy mixes, as we may now be facing, the rules of the global trading system will be more important than ever.”–Maurice Obstfeld, International Monetary Fund Economic Counsellor and Director of Research,  and Professor of Economics