NS4540 Winter Term 2017 Class Discussions January 30/February 1, 2017 Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

Class Discussion 1/30/2017, 2/1/2017 Latin America has always been greatly affected directly or indirectly with developments in the U.S. Economy – hard to make a forecast without this frame of reference: Indirect effects: Mohamed El-Erain, “Trump’s Economic Approach Starts to Take Shape,” Bloomberg January 26, 2017 Robert Looney, “Trump’s Supply-Side Economics Have Little Chance of Working in 2017,” World Politics Review December 28, 2016 Direct effects Neil Irwin: What is NAFTA and how might Trump change it?,” New York Times January 25, 2017 Jose Ocampo, “Will Trump block Latin America’s Recovery?” Project Syndicate, January 24, 2017

Trump’s Overall Program Mohamed El-Erain, “Trump’s Economic Approach Starts to Take Shape,” Bloomberg January 26, 2017 Strategy based on “import-substitution plus” – combines an industrial policy Operates at macro and micro levels Uses signals and narratives as economic policy tools Uses carrots and sticks Willing to depart from long-established rules governing cross-border relationships How will all this be managed? Collaborative manner that balances countries' domestic and global responsibilities or Disjointed and uncoordinated fashion

Trump’s Supply Side Program Robert Looney, Trump’s Supply-Side Economics Business man’s approach vs. economist’s Proposals suggest supply-side approach – tax breaks, deregulation – free up resources for private sector Question of whether supply-side worked in the 1980s Are conditions similar to the 1980s? Productivity Potential output Entrepreneurship Offsetting effects today Interest rates Dollar Micro view – bigger picture Carrier deal

NAFTA Neil Irwin, What is NAFTA and how might Trump change It?, New York Times, January, 26, 2017 NAFTA – FTA – eliminated barriers to trade NAFTA Results – major expansion trade interconnecting of economies – supply chains Impact – theoretically should create more high-paying jobs in U.S. – shift lower paying jobs to Mexico In practice – decline in some high value jobs in U.S. mainly blue-collar men Can Trump kill NAFTA – yes, but messy and at high cost – U.S. credibility What does Trump want – rules of origin – Increase in North American share comes at expanse of China, U.S. border tax to offset Mexican VA tax Withdraw could be gradual with new deals with Canada and Mexico – considered inefficient by most economists

Latin American Recovery Jose Ocampo, Will Trump Block Latin America’s Recovery? Project Syndicate January 24, 2017 Problem: new trade and financial uncertainties Mexico already had investments affected and a sinking peso Other countries Brazil, Argentina, Venezuela – domestic issues more important Chile, Colombia and Uruguay on slow growth trajectory. Peru recovering but at much slower rate than usual Only Paraguay and Bolivia, Central America and DR doing well Slow trade growth a significant risk for Latin America Interest rates could be increasing with U.S. fiscal expansion