Trump/Xi Jinping Agreement Ends Global Crisis
The contraction cycle of the global economy is behind us. It began in the first quarter of 2018, when the impact of the “trade” conflict between the U.S. and China plunged the system into deep uncertainty.
Now, the Trump/Xi Jinping agreement signed this month in the U.S. in two “phases” reaffirms America’s strategic supremacy, recognized by China; and thus closes the conflict in which the power of the world is decided in the 21st century, centered on the advanced technologies of the new industrial revolution, first and foremost “Artificial Intelligence”.
Highlights of agro-industry and regional economies.
This event brings to the world a tremendous certainty that closes the contractive/recessive cycle of the global economy of the last 18 months.
The JP Morgan Global Index (JP Morgan/2019) climbed in October to 50.3, and showed an increase of more than 1 point over three months ago; and the capital investment index, after having reached the lowest level of the decade in the third quarter of 2018 (48%) increased by more than 1 percentage point in 2019.
The capital expenditure index is particularly relevant to global manufacturing, which sank into a deep recession last year, as it was directly hit by the uncertainty shock unleashed by the US/China shock, which suspended global manufacturing investment decisions for more than a year.
What is decisive is that the instantaneous global index (Fulcrum nowcast Index), which measures “instant” global expansion and encompasses manufacturing and services, experienced an annual increase of 3% in October, which measured in PPP was 5% in the year, similar to the 3 years after 2015.
The U.S. economy, the largest in the world, is operating at full capacity (85% of the total). It is a “super-intensive” process according to the Federal Reserve, with all cylinders deployed from production factors.
This exceptional boom now depends on a single factor which is the level of investment, the highest in its history. According to the IMF, the investment rate in the US absorbed 1.6% of GDP between 2017 and 2018; and this as part of the mass of capital that the US received in this period: US$ 11 billion between 2017, 2018 and the first 6 months of 2019.
More than 2/3 of this alluvium overturned on Wall Street, unleashing a stock boom that is even greater than those experienced by the US in the 1920s and the years after World War II. Standard & Poor’s 500 (S&P500) increased more than 20 points in the last 6 months, and surpassed 3,000 points, an absolute record, while the Dow Jones Industrial climbed to 26,996 points, and the Nasdaq (high tech) reached 8,170 points.
The exceptional boom in the U.S. in the last 3 years is the direct result of the tax cut ordered by Donald Trump and the Republican Congress in 2017, which implied a drastic reduction in the corporate tax on profits, which went from 35% to 21%, and led to an improvement in the return of U.S. companies and transnationals based there of more than 30%.
To this must be added the discount on all investments in capital goods made in the first year after the new tax regime, and this triggered a phenomenal boom in investments in machinery and equipment, all of the latest generation technology.
This happens when individual consumption – which represents 70% of U.S. GDP – increased 4.7% annually in the last 3 years, with unemployment of 3.6%, the lowest in 6 decades; and real wages that increase 3.5% annually, the highest rate in the last 10 years. The Bloomberg Index, which combines real wages with stock values, is at its highest level since 1999.
China, the world’s second largest economy, is responsible for 35% of global growth in the last 10 years (U.S. 15%); and has turned to domestic consumption since 2008, which accounts for 98% of product expansion in 2019 (6% annually in the third quarter).
The consumption boom in the People’s Republic (U$S 6.9 billion in 2019) is based on a digital economy that would cover 40% of GDP in 2020, in which the new industrial revolution – complete computerization of manufacturing and services – is processed through “Artificial Intelligence”, the Internet of Things, and robotization.
At the heart of the 2019 world events is the fact that China disputes with the U.S. the primacy in the domain of advanced 21st century technologies through the digital economy, especially the decisive and fundamental: “Artificial Intelligence”.