The world economy has been booming. Bloomberg says the world economy is approaching its best year since 2011.
On the other hand, there are always things that can go wrong. Here are a few possible events that could put the brakes on continued, unencumbered growth.
Though all-out war seems unlikely, other tension can exert serious negative pressure on world economy, mostly because South Korea makes up 2% of the entire world’s gross domestic product.
Rapidly rising debt and slow economic growth forced credit rating agencies to downgrade China as an investment opportunity, for the first time in 30 years. The country did announce economic reforms for the coming year, but analysts feel that if the reforms come too late, there could be serious de-stabilization in the Chinese economy.
Donald Trump’s “America First” policies could backfire and cause our biggest trade partners, especially China to retaliate with some “protectionism” of their own. This could then lead to an unpredictable global business climate and unstable operating costs.
The uncertainty caused by President Trump’s threat to pull out of the North American Trade Agreement, which has been operational since 1994, could disrupt markets, reduce credit growth, and have many other dire consequences to our best trading partners, Mexico and Canada.
The EU had more economic growth in 2017 than the US, but that is not a guarantee that such a state of affairs will continue. The rise of the far-right in the East, Brexit, immigrants and more can all lead to destabilization and uncertainty in the Eurozone marketplace.
According to Politico, two White House officials stated that a draft order to withdraw from NAFTA has already been submitted for the last stages of review, and could be released by the end of this week, or early next week.
The order was written by Trump’s head of the National Trade Council, Peter Navarro, in corroboration with the White House chief strategist Steve Bannon. It is still unclear what the order states, but the effect on trade can be predicted by an examination of the top 20 exports arriving from Mexico to the US.
In January Capital Economics’ chief emerging markets economist Neil Shearing published a chart in a memo to clients graphing the top 20 exports from Mexico according to their 2015 US dollar value.
About 25 percent of Mexico’s total exports to the US, by far the largest slice, came from the auto sector, valued at about $80 billion. The next three items are electrical components, food, and computers, together valued at about $55 billion.
“The upshot, then, is that targeted measures imposed on the vehicle, electronics, and food and beverage sectors would hit Mexico’s economy especially hard,” wrote Shearing. “Similarly, in the event of a blanket tariff across all sectors, producers in these areas would be among the hardest hit.”
In wake of the reports that Trump is on the verge of pulling out of NAFTA the peso is crashing, down over 2.2 percent at 19.2704 as of 12:53pm Wednesday afternoon.
A survey conducted by the National Association for Business Economics showed that Hillary Clinton is the preferred candidate for president of the US by 55 percent to an embarrassing 14 percent for Donald Trump. As a matter of fact, Trump was not the second choice. Third party Libertarian candidate Gary Johnson had more support than Trump, with 15 percent saying they would prefer to see him as president. An additional 15 percent said they did not know or had no opinion.
The survey was conducted from July 20 to August 2 and included the views of 414 members of NABE.
Some of Trump’s policies seem to be contributing to his lack of support. Whereas Trump says he would like to nullify or severely restrict the North American Free Trade Agreement, 65 percent of business economists say US trade policy should be even more open and free versus only 9 percent who agree with Trump that trade should be more protectionist.
Trump has expressed a desire to deport illegal immigrants, but the NABE survey showed that only 8 percent agreed with that sentiment, while 64 percent said they would like to see a program to legalize undocumented immigrants who already live in the US.
Over the past twenty years, and especially the last ten, Mexico has been making major progress as a major exporter of cars and trucks to the United States. Although Japan and Canada still control the market share, Mexico has been making inroads that point to them surpassing and overtaking these wealthy first world countries as a major automobile supplier.
A new Honda plant is due to open later this week in Celaya, Mexico, in the central state of Guanajuato. At a cost of about $800 million, the factory will produce about 200,000 Fit hatchbacks per year. That will bring the total number of cars exported to the US from Mexico up to 1.7 million in 2014. That is about 200,000 more cars than the US will buy from Japan in 2014. And when another new plant begins production a week later, Mexico will take over Canada’s number spot as the largest seller of cars to the US in the world by 2015.
“It’s a safe bet,” said Eduardo Solis, president of the Mexican Automotive Industry Association. “Mexico is now one of the major global players in car manufacturing.”
The progress Mexico has been making can be traced back to the passage of the North American Trade Agreement, (NAFTA) which went into force on January 1, 1994. Back then Mexico made only 6 percent of all the cars manufactured in all of North America. Today they produce 19 percent. Since 2007 total Mexican car production rose 39 percent, to almost 3 million cars a year. The value of those exports to the US has soared from $40 billion per year in 2007 to $70.6 billion today.
The Mexican car industry is now the country’s major source of foreign currency, passing oil exports and cash Mexican migrants to the US send back home.
According to the U.S. Department of Transportation’s Bureau of Transportation Statistics, surface-transportation trade between the United States, Canada and Mexico has increased 18.3% in August since last year, totaling $80.4 billion.
In fact, this is the second time since its inception that the U.S.-NAFTA measure exceeded $80 billion in a single month. Trade in 2011 has reached $596.5 billion as of November 1st.
Surface transportation throughout North America consists mainly of freight transports by truck, train, rail, pipeline, mail and Foreign Trade Zones. In August, 86% if U.S. trade with Canada and Mexico was transported over land by American, Canadian and Mexican trucking companies, 9.6% via vessel and 4.4% by air.
According to thetrucker.com, the Research and Innovative Technology Administration reported: “NAFTA trade rose 48.2% in two years from August 2009 and 11.3% in three years from August 2008.”