The Trump Administration has been pursuing three key strategies over the last year that have large incompatibilities given conditions in global monetary markets, especially the end of quantitative easing. The combined effects of these policies may inadvertently create an economic crisis in the coming year. The first policy relates to immigration. Given Congress' inability to pass immigration legislation, now-former U.S. Attorney General Jeff Sessions and U.S. Secretary of Homeland Security Kirstjen Nielsen have taken and continue to take aggressive steps to limit the undocumented immigrants coming into the United States and crack down on those already here. Consequently, the United States faces a shortage of manual labor, especially in the agriculture and construction industries.
The second policy involves trade. U.S. Secretary of Commerce Wilbur Ross, U.S. Trade Representative Robert Lighthizer, and White House trade adviser Peter Navarro have persuaded President Trump to implement tariffs on imports from China, other Asian countries, Canada, and Europe. Quotas may be next.
Finally, U.S. Secretary of State Mike Pompeo, U.S. Treasury Secretary Steven Mnuchin, and National Security Advisor John Bolton favor strictly enforcing the coming re-imposition of sanctions on Iran, with the goal of shutting down all oil exports from the country.
Each of these policies has supporters. U.S. immigration policy has been broken for years. Many low-wage workers believe the influx of undocumented immigrants, primarily from Latin American countries, has prevented them from realizing higher wages. The data support their view. The inflation-adjusted median "usual weekly earnings" have increased meagerly from $345 per week to $351 per week from 2008 to 2018, a rate of 0.2 percent per year. The lack of rising incomes for full-time workers was one contributor to the Republican victory in 2016, and the much tougher immigration policy was one consequence of that win.
President Trump's "America First" trade policy is the second key factor creating economic risk for the United States and the world. The Trump Administration's actions have focused on reversing the outsourcing of U.S. manufacturing to other countries to bring back those "good manufacturing jobs."
Finally, the State Department, Treasury Department, and the president's national security advisor are working to squeeze Iran from the oil market. The Obama sanctions will be re-imposed on the country but enforced more strictly. As Bloomberg reporters Heesu Lee and Debjit Chakraborty wrote October 3, "Oil buyers who viewed Obama-era policies as precedent for U.S. sanctions on Iran are getting a rude shock."
Lee and Chakraborty explain, for example, that Asian oil importers have been "blindsided." These importers believed they would only need to reduce shipments from Iran as they did during the Obama administration. This is not the case. As the authors note, "Now, one after another, buyers are complying to avoid being cut off from the American financial system when restrictions on Iranian supplies take effect in November."
Lee and Chakraborty assert that the miscalculation is the root cause of oil "surging to over $85 per barrel and forecasts for $100 oil." Prices have risen because Asian buyers have had to reduce or stop their oil imports from Iran. As the authors note in a footnote to a graph, "South Korea has already halted purchases from Iran; Japan has said September cargoes will be its last; India doesn't plan to buy any in November." They add that government officials in India and South Korea are complaining that negotiations with the United States have become much more difficult since Trump took office.
The U.S. officials pushing this "zero imports" policy may have made an innocent mistake, relying on projections from the U.S. Energy Information Administration, an agency that regularly gets forecasts incorrect. There even seemed to be a contingency plan if they were wrong about the sanctions' impact on the oil market. Initially, the United States appeared to be open to releasing oil from the Strategic Petroleum Reserve if sanctions caused excessive market tightness. In late September, Platts' Brian Scheid and Meghan Gordon reported the following statement from a government official, one that implied the possibility of an SPR release: '"We will ensure prior to the re-imposition of our...