Report
The financing of the US external deficit is the weak link in Trump’s strategy
The highly expansionary economic policies conducted in the United States in a situation of full employment have positive effects (increases in the participation rate and in productivity gains) but inevitably lead to an increase in the US external deficit. Th is deficit is now being financed by the European Union, which has replaced China in the role as the United States’ creditor and buyer of US Treasuries. Russia, Japan and China are sellers of Treasuries, and OPEC countries are buyers to a small extent. If a conflict were to arise between the United States and Europe (trade war, accusation of euro manipulation), Europe could follow the lead of Russia, Japan and China and stop buying dollars. This would trigger a severe crisis in the United States, which would have to reduce its domestic demand to eliminate its external deficit.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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