Fed may not hike rate if Trump wins: Joesph Stiglitz

The isolationist policies proposed by the Republican Presidential candidate Donald Trump in the US would have ad verse effects on emerging markets, said Joseph Stiglitz, recipient of the Nobel Prize for Economics and professor at Columbia University.

In a conference call, on Friday, organised by Credit Suisse to discuss the outlook and expectations surrounding the US elections, Stiglitz said the likely economic turmoil in the event of Trump winning, would induce the US Federal Reserve not to raise rates, the probability of which happening in December, for now, is high. Edited excerpts:

On probable winner:

There is a bit of a possibility that the Utah will vote for an independent candidate and the Electoral College will be split with nobody having a majority, in which case it would be drawn to the House of Representatives. There is a small probability that next Wednesday we won’t know the answer. But apart from that, it will be Hillary or Trump and the outcome obviously has very deep implications for the global economy.

On Trump win impact on emerging markets:

It is going to make a great deal of difference, who wins. Trump basically has a nativist view and Hillary is in the tradition of majority of Americans being integrated in the global economy. There is nothing that symbolises the difference more than the fact that Trump wants to build a wall between Mexico and the US. I don’t think he would be able to do those things. His kind of isolationism will obviously have an adverse effect on emerging markets (EMs). They benefitted a lot from expansion of global trade. There are two groups that have done very well by globalisation in the last quarter century -the upper 1% and the global middle class, which is really the middle class in EMs. Two groups that have done very badly include, the people at the very bottom and the middle class in the US and Europe. They have seen their income stagnate. The way to solve that problem is not at the expense of emerging markets but to realise that if the whole world grows, we can all benefit. Trump frames it as very much a zero sum framework. He thinks we have lost because of what they gained. The reason that so many Americans have not done well is not as much trade as it is advances in technology. The real problem is that we need to help workers shift from old industries to new, help restructure the economy, and invest in people, infrastructure and technology.

On Fed rate hike prospects if Trump wins:

The economic turmoil that is possible resulting from a Trump win would induce the Fed (US Federal Reserve) not to raise rates in the same way as the Bank of England, which did not raise interest rate, but lowered it because they were worried about the consequences of Brexit. The Fed would bear in mind that this is an extraordinary disturbing event to America and would hold on if the rate increases.

On treaties change if Trump wins:

Much less than what he claims now because you cannot just abrogate a treaty. These are legally binding documents that have consequences if you walk away but the very threat of his walking away has already had potentially adverse effects on our global stature. It is obviously disturbing to anybody who signs a treaty or an agreement with the US.What is to me striking is one of the things that have not got as much attention as I would have thought. Can you imagine a candidate 20 years ago who praises the leader of Russia and openly admits that he and his family do business with Russia? He is overturning the basic stance of who we work with and who we don’t work with, who are our friends and who are not, who share our values.He does not seem to share that particular perspective.

On how either candidate may uplift US growth:

There is a common ground in recognition that we need expansionary fiscal policy. Both have put forward a notion that we need to spend more on infrastructure. The problem with evaluating Trump agenda is it is fanciful. It talks about tax cuts, increase in spending and reducing the deficit. You can’t decrease revenues from lowering taxes and increase in spending, and lower the deficit. The Republican Party has been very focused on deficits and so, it is almost inconceivable to see how they would be able to finance the kind of infrastructure expenditures that he says he wants.Hillary has been very careful, in fact very unusual for a candidate, in trying to make sure that any proposal is funded and so, her agenda will be pushed through.

On Hillary’s top priorities if she wins:

The top priority facing Hillary if she gets elected is reigniting the economy. The economy is weak and it is clear that monetary policy is not going to suffice to get us going again and we will need a disciplined fiscal policy. The second priority is inequality, dealing with the people who are so disaffected because they have not shared America’s prosperity. The third big concern is how to make the basic processes of the middle class lifestyle that are going out of reach of so many Americans, once again attainable. We are talking here about making sure people can get education for children and send them to college.

On Trump win impact on US’ relations with China:

About his threat of having 45% tariff (on Chinese imports); China and the US are part of the World Trade Organization (WTO) and that is one of the treaties that govern trade relations. There is a provision in that agreement that if we impose tariffs without certain due process then they would retaliate and they know how to retaliate very effectively. There are certain cases where there is a procedure where if they are engaged in dumping something below cost, then we are allowed to put dumping duties.This is simply the beginning of a trade war which is reminiscent of what happened before the Great Depression, which would not be in US’, China’s or the world’s interest. I hope it doesn’t go down there. He may want to take a more active dumping policy but there are laws and regulations both in the US and the WTO where you can appeal.There is an appellate procedure and he would have to follow that. He is living in a world gone by, not in the world as it is. China is the largest economy in the world and we are going to have to learn how to live with China and to work constructively.

On speed of policy implementation by Hillary/Trump post election win:

Hillary is clearly much better set up. Trump is an unusual business person. It is not like he has created a company that manufactures something. He is a real estate developer and a casino operator which are not the kind of businesses that really create jobs and require the kind of innovation that we hope will be at the centre of our economy. Hillary is emphasising the importance of research, technology and human capital -a broad-based investment in the economy. Hillary has a team of people with a lot of experience and Trump doesn’t. It is even worse than that in some ways.There was a newspaper article pointing out that there are virtually no CEOs of major companies that have come out in support of Trump.Trump has said things that most Americans find very upsetting -sexist, racist and nativist -that really aren’t true to the American spirit. He is going to have a hard time getting a lot of the most experienced people to join and then he has to get it through the Senate.

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