Here’s How Trump’s Reckless ‘America First’ Policies Could Be Setting Up US Consumers for a Nasty Shock | Alternet
Because since the fall of the Soviet Union (and the corresponding end of the Cold War), the expansion of globalization has largely imparted a deflationary bias to the global economy via “synthetic immigration.” If that term is foreign to you, here’s what it means: a mispriced dollar/yuan exchange rate made the price of labor in China so low for U.S. corporations that the price of American labor looked like a luxury item, and they moved their manufacturing operations to China. China knowingly undervalued its currency to get this process rolling, and over time, it produced a big economic contraction in the U.S. and world economy, the extent of which is literally papered over or hidden by a huge number of bubbles in the world financial markets. Advances in capital mobility, globalization, telecommunications, shipping and low fuel prices made all of this possible.
The rise of a trade battle between Trump and China, plus the long-term outcomes from the reconfigured USMCA, have the potential to reshape long-term trade patterns and the world’s capital and financial markets—and not necessarily smoothly; most of all because the total result could be more politically volatile as well as being more inflationary: a smaller, more divided world economy, competing regional trade blocs, higher prices for consumers. How will they pay for these more expensive things?
To the extent that globalization is impeded by increasing protectionism, that deflationary export channel from China is also disrupted. That could mean higher prices for American consumers, even allowing for the relatively muted pressures reflected in the September CPI. It’s unclear if inflation rates will gobble that up, but on current trends, that remains possible, especially if the trade war persists. Tariffs and other protectionist measures may well produce more domestic jobs, but at the cost of consumers likely having to face higher prices.
The US is going to be squeezed between the vice of inflation (higher prices) and higher loan rates, but hourly wage rates kept at an artificially low level, all of which cause the economy to contract. Buckle up.