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Economic forecast after US election

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US economists and analysts from the Standard & Poor (S&P) forecasted the overall development trends of the US economy in the coming four years at an after-election economic forum held at the end of October.

Experts are of the opinion that no matter who will enter and host the White House, his policy will hardly bring much influence on the market and the overall economy at least in the next one to two years. In the opinion of S&P chief economist David Wyss, on the premise of the federal financial deficit, terrorism and economic stagnation, the room for government operation in the economic policy is limited. Although the Republican Party currently holds most seats in the Senate and House of Representatives, its dominance is not obvious. Under the two-party system, the control power for the next president is greatly restricted.

Wyss predicts that the US economy will soon enter a sluggish period, that is to say, the stock market profit growth will slow down. An investment division manager Edwards said that there is currently a variety of information about prediction of the economic trends, but generally speaking, it seems there is not much confidence in the economic prospect.

Major factors affecting the economy after election are as follows:

Oil price remains high
Both Bush and Kerry are unable to check the rising oil price in the near term. Currently, the average expenditure of US families on energy is about 5 percent of their total income, this ratio is higher than that in previous years, but expenditure on energy will not reach 8 percent of the 1980s. If oil price can fall somewhat, the US economy may have a 3 percent to 3.5 percent growth in 2005.

Weak stock market will continue
The slump of the stock market will continue, under the circumstance of weakening company profits and the stock market's return rate, small stocks with inactive transaction volume sustain especially conspicuous influence.

Company profit growth slows down
Company profits have undergone consistent growth in the past two years due to policy influence, in 2004, the average operational profit growth rates of 500 kinds of industrial shares reached 21 percent, but in 2005, profit growth rate will likely fail to reach half of this figure, which is estimated to stand at only 9 percent.

Although the Republican Party more supports a free economy, historically, the market looked better during the administration of the Democratic Party. After World War II, during the period when the Democrat held the presidential post, the average growth rate of the stock market was 11.5 percent, 2.3 percent higher than that during the administration of the Republicans.

Another historical situation is that if the president in office fails to be reelected, the stock price will quickly drop. That is to say, if Kerry wins on November 2, the Wall Street's short-term reaction will be a plummet. However, the long-term factor that determines the market depends more on oil price, commercial environment and debt burden, which can hardly be controlled by anyone president.

The subcontracting trend is irresistible
Voters are liable to shift the blame on subcontracting for their unemployment and decline in their living standards. A poll conducted not long ago shows that 71 percent of the Americans hold that subcontracting harms the US economy. In states where competition for election to the presidential post is going on fiercely, 66 percent of registered voters hold that the company is duty-bound to keep work opportunities in the United States.

Although contracting work out is not a new topic for entrepreneurs, many Americans firmly believe in subcontracting after it was much fussed about by the media over the past year or more. The use of Internet makes it possible for US companies to easily contract work out to overseas, for instance, the development of software and the establishment of a telephone traffic center, etc.

But an all-round auditing figure released by the US Congress Auditing Administration early this year shows that contracting work out is not the chief culprit of US high unemployment rate. In US last year's massive reduction of 50 staff members at one time, less than 1 percent of the 1.5 million people who lost their jobs was related to company's contracting work out. Chairman of the Presidential economic advisory committee said that contracting work out is only another form of free trade. But that remark, viewed as most correct by economists, was furiously attacked by Republicans and Democrats.

As a source of US economic innovation and an important force boosting US productive forces, the US information industry is the sector that contracts work out on the largest scale. On the question of contracting work out, Bush's stand is that contracting work out is a good thing for the United States, it is the natural result of global competition, and will enhance the efficiency and competitiveness of US companies.

John Kerry, candidate of the Democratic Party for the presidential post openly opposes any form of contracting out work and indicates that if a company which contracts work opportunities out to overseas, it will be deprived of preferential taxation treatment, but if it creates or reserves employment posts at home, it will be given an award. According to a professor with the Politics Department of Chicago University, no matter what the election result will be, neither Bush nor Kerry can stop a company from contracting work out, nor will they roll off laws to ban this practice.

The health of the US economy is harmed
In the past few years, Bush has implemented a series of new economic policies to meet the needs of counter-terrorism and for reelection. Wall Street's financiers and market analysts deem the implementing result of these policies has harmed the US economy as a whole and overdrawn the health of the US economy.

With respect to taxation, for instance, Bush's taxation policy benefits only companies, enterprises and consortia, the government's use of administrative measures to redistribute wealth has resulted in making the rich richer and the poor poorer.

Worse still, as a result of implementing Bush's taxation policy, 82 large enterprises not only were exempted from paying taxes, but gained US$12.6 billion of preferential tax rebates between 2000 and 2003. It is thus not difficult to understand why the overwhelming majority of Wall Street bosses (about 90 percent of the high-level people) support Bush.

Contrarily, in this country called the wealthiest in the world, the living standards of the common people are declining with each passing day. Under the circumstance wherein the economic growth is not so robust, the wealth of the richest and most powerful people in the United States has increased dramatically, the number of people with wealth reaching US$1 billion each has jumped from 79 in 1996 to 313 this year, nearly 5-fold in eight years. Moreover, wealth is concentrated in the hands of a small number of people, and this tendency is expanding with increasing clarity. Whereas the number of the poor in the United States increased from 31.6 million in 2000 when Bush assumed office, to over 36 million in 2003, poor people accounted for 12.5 percent of the total population, with the increase rate reaching as high as 14 percent in two years.

Due to the huge expenditure on US national defense, the country's expenditures on the reconstruction of Afghanistan and Iraq have greatly increased and its financial assistance to local governments has decreased enormously, the local governments cannot but considerably increase local tax collections, which led to a 5 percent fall in the real incomes of many American families in the last three years and the decline in people's living standards of the middle and lower strata. Some economic policy measures Bush implemented in a bid for re-election, though temporarily maintaining the "prosperity" of the US economy, have overdrawn US national strength, experts' analyses reveal that these practices intended for quick successes and instant benefits would harm the descendants, "bringing endless troubles for the future".

Hackneyed tone on exchange rate of renminbi will remain
Trade deficit between China and the United States unavoidably makes Renminbi (People's Currency) scapegoat. Whether Bush is reelected, or a new host will enter the White House, the trend of the exchange rate of the Chinese People's Currency will remain a question of US continued concern.

It is the view of experts that raising the employment rate is one of the major issues that the next US president must resolve. If Kerry is elected, pressure from American people's demand for the revaluation of the Renminbi will increase, because Kerry always emphasizes that he regards safeguarding laborers' interests as his own duty.

But on the other hand, how loud a voice would the US manufacturing industry utter is still doubtful, to a certain extent, the US manufacturing industry is already a synonym of sun-set industry and does not hold much advantage in public opinion. Furthermore, there is difference in the views on the exchange rate of Renminbi within the American Manufacturing Industry Association.

China has never relented on the exchange rate of the Renminbi. Nor will Washington's request in this regard soften up. When the global textiles import quota is abolished early next year, there will be a new round of demand for the appreciation of the Renminbi. But one thing is certain, China has for a long time stabilized the exchange of the Renminbi at the level of one US dollar against 8.28 yuan since it conducted reform of the foreign exchange control system in 1994, this policy will not be changed easily under political pressure.

No big change in US trade policy toward China
Although China-US trade dispute is not the main topic of conversations on US election this year, as the world's two most attractive economies, how will the United States change its trade policy toward China after the general election will still be the focus of attention from various sides.

A worrying situation regarding China-US trade has emerged again and again in the past year, the United States successively imposed restrictions on the imports of China-made textiles, color TV sets and furniture, recently it again made a big issue of the export of Chinese socks and stockings, while China levied additional tariffs on US-made semi-conductor products. There is the possibility for escalation of Sino-US trade conflicts.

Traditionally, the Republicans gave more support to free trade than the Democrats did. But the Clinton administration's experience proves that the Democratic government can also automatically and actively support free trade, and will finally disconnect China's most-favored nation treatment and the human rights issue. While the Bush administration's trade protectionist measures show that the Republican government will unhesitatingly resort to high-handedness by closing the market in sensitive industries. In the opinion of the chairman of the US-China Trade National Committee, no matter who, Bush or Kerry, will finally win, but as far as the White House is concerned, US trade policy toward China will not change fundamentally.

The above article is written by People's Daily Online reporter Zou Dehao stationed in the United Nations




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