20180629-NATIXIS-The_odd_policy_mix_in_the_United_States_4页_572kb

Flash Economics Summary

Core Content

This document discusses the economic policy conflicts in the United States under the Trump administration, focusing on the contradictions between fiscal, monetary, and trade policies. It highlights how these conflicting policies may undermine each other and affect demand and corporate earnings.

Main Views

1. Fiscal Policy and Trade Policy Conflict

• The Trump administration is pursuing an expansionary fiscal policy to stimulate demand, especially near full employment.
• At the same time, it is implementing protectionist trade policies through customs tariffs, which increase import prices.
• These tariffs have limited impact on the volume of imports, as shown by the data from 2002–2018, indicating low price elasticity of US imports.
• Protectionist policies are therefore contradictory to the goal of stimulating demand through fiscal expansion.

2. Fiscal Policy and Earnings Impact

• The reduction of corporate tax rates from 35% to 21% has led to an increase in corporate earnings.
• However, protectionist measures (tariffs on intermediate goods like solar cells, steel, and aluminum) are expected to reduce corporate earnings.
• This creates a conflict between fiscal policy (tax cuts) and protectionist trade policy, both of which affect corporate earnings in opposing directions.

3. Monetary Policy and Its Effects

• The Federal Reserve is normalizing interest rates.
• This has negative effects on demand and corporate earnings due to increased interest payments on corporate debt.
• The monetary tightening counteracts the fiscal stimulus and tax cuts, leading to a double policy conflict between fiscal and monetary policies.

Key Information

• Fiscal Policy: Expansionary, aiming to boost demand at full employment.
• Trade Policy: Protectionist, with tariffs that raise import prices and reduce demand.
• Monetary Policy: Normalizing interest rates, which reduces demand and corporate earnings.
• Corporate Earnings: Tax cuts increase earnings, while tariffs reduce them.
• Policy Conflict: The US faces two major conflicts:
  • Between fiscal and trade policies.
  • Between fiscal and monetary policies.
• These conflicts may lead to inconsistent economic outcomes and reduce the effectiveness of the overall policy mix.

Conclusion

The document concludes that the US policy mix is inconsistent and conflicting, creating a double economic policy conflict. The expansionary fiscal policy and tax cuts are contradicted by protectionist trade policies and monetary tightening, which may hinder growth and corporate earnings.

Disclaimer Highlights

• The document is intended for professionals and qualified investors only.
• It is strictly confidential and not a personalized investment recommendation.
• No liability is accepted by Natixis or its affiliates for the content or its consequences.
• No financial analysis is provided, and no assumptions are made about future performance.
• The views expressed are personal and may differ among authors.
• Regulatory compliance is emphasized, with different regulatory authorities in various countries.
• No representation or warranty is made regarding the accuracy or completeness of the information.

Regulatory Context

• Natixis is supervised by the ECB and authorized in France, Germany, Spain, Italy, Dubai, Australia, and Hong Kong.
• The report is only available to major U.S. institutional investors and not for general distribution in the U.S.
• Natixis Securities Americas LLC is a U.S. registered broker-dealer and not involved in the preparation of the report.