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Former bond star brands Trump’s economic adviser ‘ignorant’

Former bond star brands Trump’s economic adviser ‘ignorant’

US President-elect Donald Trump’s main economic adviser is ‘ignorant’ of macroeconomics and will cause a deep domestic and global recession.

That is according to formerly Citywire AA-rated bond manager Torgeir Høien, who now works as a senior analyst covering macroeconomics at Skagen.

In a short commentary on the company’s website, Høien said Peter Navarro, who is Trump’s most central adviser, will be crucial in whether so-called ‘Trumponomics’ succeeds.

‘The problem is that when it comes to macroeconomics Peter Navarro is ignorant. Navarro knows that a nation's gross domestic product = consumption + investment + exports – imports.

‘He then reasons that if the US, by protectionist means, increases imports and cuts exports then GDP increases. But this is a fundamental misunderstanding,’ he said.

Høien, who has commented widely on macro matters from Scottish Independence to the death of paper money, said Trump’s much-discussed protectionist policies will leave many investors cold, given historical examples.

‘Theory and experience tell us that imposing protectionism, for example through higher tariffs on imports, causes gross domestic product to decrease - through a multitude of effects. The prices of imported inputs become more expansive, hurting domestic firms.

‘Firms that export face retaliatory measures. The economy operates less efficiently, as large scale production and specialization are curtailed. Investments are cut, leading to less capital per worker. Less capital means lower wages – or higher unemployment. And equity holders take a hit though lower profits.’

Høien said Trumponomics can cause a deep recession in the US and a new global recession and called for a ‘Damascene’ conversion of Navarro’s thinking before he assumes his role as responsible for trade and industry policy on January 20.

Failing that, Høien, said, Trump should listen to his other advisers, notably Larry Kudlow and Arthur Laffer or hope Congress crushes protectionist aspects of Trumponomics. ‘If so, Trumponomics – with an emphasis on deregulation and tax cuts – might spur American and global growth.’

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