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The Achilles’ Heel of Trumponomics

The US president-elect's economic strategy is severely flawed: its protectionist bias collides head-on with the imperative of increased US reliance on foreign saving and trade deficits in order to sustain economic growth. A saving-short, protectionist America is a country on a path to nowhere.

NEW HAVEN – Donald Trump’s economic strategy is severely flawed. The US president-elect wants to restore growth via deficit spending in a country with a chronic shortfall of saving. This points to a further compression in national saving, making a widening of an already outsize trade gap all but inevitable.

That dynamic unmasks the Achilles’ heel of Trumponomics: a blatant protectionist bias that collides head-on with America’s inescapable reliance on foreign saving and trade deficits to sustain economic growth.

The Trump administration will not inherit a strong and sound US economy. The pace of recovery since the Great Recession has been running at half that of normal cyclical rebounds – all the more disturbing given the massive size of the contraction in 2008-09. And savings, the seed corn of future prosperity, remain in woefully short supply. The so-called net national saving rate – the depreciation-adjusted sum of business, household, and government saving – stood at just 2.4% of national income in mid-2016. While that’s an improvement from the unprecedented negative saving position in 2008-2011, it remains far short of the 6.3% average that prevailed over the final three decades of the twentieth century.

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