The End of Protectionism is Inflation..

In the United States, the inflation rates for October appear to have aligned with expectations. Therefore, we can say that the anticipation of another interest rate cut from the Fed in December has also increased.

Although the data related to inflation came in as expected, the monthly core inflation being higher than consumer prices indicates that the danger has not yet passed. Thus, it should be expected that interest rate cuts will be implemented in small steps rather than large ones.

On the other hand, many governments, particularly those of Germany and the UK, are under stress due to the customs tariffs that Trump will implement as soon as he takes office. The reasoning is that the US is the world's number one importer, and many countries earn significant profits by selling goods to the US. Looking back in history, the US has accused many countries, including EU countries that sell goods to it, of having "excessive trade surpluses." This is because Americans were running trade deficits by purchasing goods and services, particularly from developing countries. We could say it’s a kind of resource transfer. However, the fact that the US runs a current account deficit with its own currency has never cornered it. This is something we should point out.

Today, the US has the largest trade deficits mainly with China, as well as with Mexico, East Asian countries, and EU countries. Germany, Ireland, and Italy are among the top 10 countries with which the US has a trade deficit. Looking at the rankings:

US TRADE DEFICIT 2023
China $279,424
Mexico $152,379
Vietnam $104,627
Germany $83,021
Japan $71,175
Canada $67,861
Ireland $65,342
South Korea $51,398
Taiwan $47,975
Italy $44,012

As can be seen from this table, the new customs tariffs from the US will catch the new movements starting with BRICS countries quite unprepared. We know very well from the example of Turkey that protectionist measures create inflation. Trump has also announced that he will initiate a "public sector austerity initiative" and appoint Elon Musk to lead this effort. It would not be wrong to say that the cabinet members that have leaked to the press are quite controversial figures. It seems that the US is determined to change not just its State Mechanism but also State Traditions.

Prof. Alkin