Part 1: Making America and Economics Great Again.

This blog is part one of a three part series. The goal of the overall series is to provide readers with an understanding of a major global macro trend. That of the Trade War between two of the world’s biggest superpowers that of the US and China. Part 1 will deal with the American economy under the leadership and direction of Donald Trump. While also introducing and explaining some important economic concepts and indicators. Part 2 will deal with the Chinese economy and its political orientation towards Communism. Part 3 will deal with the Trade War between the two nations and the overall state of global trade.

The war for the future.

The Birth of the Supremacy

The United States has been a superpower that has dominated the global stage since the end of World War II in 1945. Now China is quickly becoming a nation that wants to declare their position of strength on that stage. Over the last seventy years America has exported and controlled global mass media and entertainment. Also providing the world with rapid stages of growth in the internet and information technology. All backed with the privilege of having the worlds reserve currency.

America now under the leadership and direction of Donald Trump has started a Trade War with the Chinese. Trump’s economy has seen all major markets seeing new all-time highs in 2018. With the S&P 500 2,940, Dow Jones 26,9950, Nasdaq 8,130 and Russell 2000 1,740. But market optimism has struggled to keep up with rising interest rates. October, November and December saw a trend of high volatility in all markets, but thats a topic for a different day.

To help gauge the health of Trump’s economy. Four economic indicators will be identified and explained. These indicators include Gross Domestic Product (GDP), Unemployment rate, Interest rates and the finally the nation’s trade balance.

Making American Great Again

Gross Domestic Product or GDP for short is the money value of all goods and services produced in a country over a given period of time. The annual GDP growth for the US for the year of 2018 was at 3pc. A number driven by many different economic factors. Including market optimism and small business confidence. Also, a strong technology sector that contains companies such as Facebook, Apple, Netflix, Google and many more. The US economy set other records in 2018 such as Apple becoming the first company to be valued at a trillion dollars.

The unemployment rate is an economic indicator that measures the extent of the unemployment within the labour force of a nation over a given period of time. The Trump Administration has campaigned heavily on the issue of unemployment and American jobs. Trump’s American first approach has brought the US current unemployment rate down to 3.9pc since December 2018. The average unemployment rate for the US is between 5 and 6 percent. In 2018 unemployment was down to lows of 3.7pc. It will be an interesting number to pay attention to over the next few years. As it’s a central talking point for the Trump Administration and will be increasingly more important and political during the campaigns and election for 2020.

In classical economic theory. The rate of interest was simply regarded as the rate of return of capital (money) invested. The rate was arrived at by looking at the interaction between two forces, that being the supply of and demand for funds.

The demand side was driven by the entrepreneurs and businesses’ expectation of potential profits from any business venture. The demand side of the rate of interest is also responsible for the productive employment of any funds borrowed. While the supply side was dependent upon people’s willingness to save. But in the case of the US interest rates has changed rapidly from the elegant theory of classical economics.

As of December 2018, the interest rate in the US is set at 2.5pc. The days of easy flowing capital with zero interest rates are over. Donald Trump voiced his opinion many times via Twitter. Trump’s market optimism was tested by the Federal Reserve over the course of 2018 with continuous rate hikes. The motivation behind the unease of rising interest rates, comes from the US’s dependency on debt for basic survival.

US Interest Rate Hikes since Trump’s election in 2016

The balance of trade is an economic concept and indicator that provides us with information relating to the difference between a nations imports and exports over a given period of time. Economists use the Balance of Trade to gauge the health of an economy. The US current balance of trade is at -55,488 billion. One of the main reasons behind the US negative balance of trade is its current relationship with China. The US and many more Western economies have shifted from being industrial orientated to service and consumption orientated.

US Balance of Trade with a 55 billion deficit. ( Trading Economics)

The year of 2018 was a good year for both the US and Trump. Will 2019 be as kind? The final quarter of 2018 saw a brutal correction in all major US Stock Markets. Will this trend continue through out the year? Or will the Trump Train keep on streaming ahead?

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Seamus Molloy

Seamus Molloy

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