29 AUGUST

"One election away from losing everything"

President Donald Trump has used a closed-door meeting with evangelical leaders on Monday to warn of "violent" consequences should the Republicans lose control of the House of Representatives in the US midterm elections. Trump said the administration's political opponents were "violent people" who would overturn gains on religious freedom "violently".

Trump warned the religious leaders: "they will overturn everything that we've done and they'll do it quickly and violently. There's violence. When you look at Antifa and you look at some of these groups — these are violent people."

"You're one election away from losing everything that you've got," he said.

The comments, which mark an escalation of Trump’s rhetoric, come amid deepening investigations into the president’s associates as well as a midterm battle that is entering its crucial final months. 

The first of the USSC's midterms explainer series is now available to read here.

NEWS WRAP

Tributes flow for John McCain

• Much turns in American politics with John McCain's passing, says CEO Simon Jackman. Writing for the ABC this week, he discussed the senator's life and legacy, as well as his commitment to the US-Australia relationship, which McCain detailed at length in a speech to the Centre in May last year. READ MORE HERE.
   

• Congressional Republicans have circulated a list of the investigations Democrats will likely launch if they are able to take the House in the midterm elections. Axios got hold of the spreadsheet, which suggests Republicans are preparing for the worst come November. The probes it predicts include: Trump's tax returns, family businesses, dealings with Russia and payments to Stephanie Clifford (aka Stormy Daniels). It also extends to Trump's transgender military ban, family separation policy and hurricane response to Puerto Rico. READ MORE HERE.
   
• Last week was an eventful one in the judicial system for people associated with the Trump campaign, as investigations into the corruption and criminality of that presidential campaign move forward. But while the convictions and pleas delivered last week get us closer to understanding the nature of the crimes, it does not necessarily move Trump closer to impeachment, according to honorary associate Nicole Hemmer in The Age. READ MORE HERE.
   
• News coverage of the escalating trade war between the United States and China has distracted from the growing consensus among Western nations that a response to China’s industrial and trade policies is necessary, according to senior fellow Charles Edel, who wrote for the American Interest this week. READ MORE HERE.
   
• Canada’s foreign minister cut short a trip to Europe and rushed to Washington on Tuesday as President Trump’s top trade advisers reiterated that the United States is prepared to leave Canada out of a revised North American Free Trade Agreement with Mexico. READ MORE HERE.
   
• A Florida candidate says her alien abduction shouldn't define her as she campaigned last week for a US House of Representatives seat being vacated by retiring Republican Ileana Ros-Lehtinen. The Miami Herald last week endorsed Rodriguez Aguilera who says she was taken aboard a spaceship as a young girl by blond extraterrestrials who resembled the Christ the Redeemer statue in Rio de Janeiro. READ MORE HERE.

We took the step to suspend several of the largest exercises as a good-faith measure coming out of the Singapore summit. We have no plans at this time to suspend any more exercises.

Defense Sec. Jim Mattis opens the door to restarting large military exercises on the Korean Peninsula
(Press comments at the Pentagon)
28 August 2018

ANALYSIS

Uncertainty kills trade just as easily as tariffs

Stephen Kirchner
Director, Trade & Investment Program

The economic damage wrought by increased taxes on international trade is well-known, as is the politics driving such self-destructive policies. Yet the direct costs of these measures are only the start. Just as damaging is the economic policy uncertainty engendered by an open-ended trade war.

While there is always some uncertainty surrounding the policy decisions of governments, the Trump administration has taken such uncertainty to unprecedented levels. Thanks to the Economic Policy Uncertainty Index developed by Scott Baker, Nicholas Bloom and Steven Davis, we can now better quantify policy uncertainty and its economic effects on the United States, Australia and the rest of the world.

In January 2017, as the newly-elected President Trump pulled the United States out of the Trans-Pacific Partnership, the Global Economic Policy Uncertainty Index was higher than during the Asian crisis, the September 11 2001 terrorist attacks, the 2008-09 global financial crisis and the 2011 European debt crisis.

In an environment of increased uncertainty, business, investors and consumers become more cautious. Investment spending is particularly vulnerable because uncertainty increases the option value of delaying investment decisions. Investment spending is also a major driver of international trade, which is dominated by trade in intermediate and capital goods.

In my report, State of Confusion, I quantify the effects of global economic policy uncertainty on global industrial production and international trade volumes. A one standard deviation increase in economic policy uncertainty leads to a 0.5 per cent decline in global industrial output and a 0.8 per cent decline in international trade after six months.

While there are other factors at work, not least the substance of the economic and trade policies actually adopted by governments, uncertainty is itself costly and has powerful cyclical effects. It should be noted that policy uncertainty is distinct from general economic uncertainty. There will always be an unpredictable or random component to the economy reflecting factors over which policymakers have little control. Although policy uncertainty is often correlated with general economic uncertainty, they are not the same thing.

Until the beginning of this year, the volatility of US equity and other financial markets had fallen to record lows, reflecting reduced volatility in underlying economic fundamentals such as economic growth and inflation. Yet economic policy uncertainty remained elevated, pointing to the potential for such uncertainty to destabilise the global economy and markets.

The good news is that the Australian economy appears to be relatively resilient to economic policy uncertainty shocks, whether at home or abroad. My research shows that such uncertainty is mainly borne by declines in the Australian dollar real effective exchange rate, real interest rates and foreign portfolio investment flows. Australia’s floating exchange rate and other financial markets adjust to insulate us from some of the consequences of policy uncertainty.

Australia’s international trade, foreign direct investment and gross national expenditure do not show statistically significant responses to economic policy uncertainty shocks, which is not to say these variables cannot be harmed by the substance of economic policy.

However, we should not be complacent. Other researchers have found that policy uncertainty weighs more heavily on economic activity during an economic downturn. Because there has not been a conventionally-defined recession in the sample period covered by the Australian Economic Policy Uncertainty Index, we cannot be confident that the local economy will be as resilient in a future downturn.

Just as there are costs associated with increased policy uncertainty, there are economic benefits from reducing uncertainty. These benefits can be captured by adhering to well-defined, transparent and rules-based policy frameworks. Bipartisan support for these frameworks can reduce the uncertainty that would otherwise arise from elections and changes in government. Bilateral, plurilateral and multilateral trade agreements can also reduce uncertainty about trade policy.

DIARY

The week ahead

• Wednesday, 29 August: President Trump and First Lady Melania Trump are scheduled to host a reception for the White House Historical Association.
   

• Wednesday, 29 August: Venice International Film Festival kicks off with the premiere of a biopic about astronaut Neil Armstrong, titled 'First Man'.
   

• Friday, 31 August: Funeral service for Aretha Franklin to be held in Detroit.
   

• Saturday, 1 September: Memorial service for John McCain at the Washington National Cathedral. Former US presidents Barack Obama and George W. Bush expected to speak.

EVENT

The US and global economy under Trump: David Livingstone in conversation with Simon Jackman

VIDEO

John McCain's speech on the US-Australia relationship

THE WEEK IN TWEETS

#JohnMcCain

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University of Sydney NSW 2006

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