Agenda - 02-21-2017-13-5 - Information Item - Memorandum - Second Quarter FY2016-17 Financial Report - Period Ending December 31, 2016

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21 Perhaps the biggest question mark for the Trump Administration will be their proposals on international trade. During the campaign, Mr. Trump forcefully talked about reducing the trade deficit by limiting imports and moving foreign production operations to the U.S. He said he would renegotiate trade treaties, sue countries that are alleged to be violating provisions of the treaties, and possibly even impose tariffs (taxes on imports) on some products as high as 35%. Certainly substituting increased domestic production for imports would contribute to faster economic growth in the U.S. The question is whether the tactics used to do this (law suits, tariffs) would invite retaliation by other countries to do the same and reduce their purchases of products made in the U.S. U.S. exports to foreign countries currently total $2.4 trillion annually, or 13% of the country's total economic production. Any significant reduction in U.S. exports would work against increasing the rate of economic growth. Indeed, U.S. exports are already facing the headwind of a rising international value of the dollar that has occurred with the growing expectation of faster U.S. economic growth. A stronger valued dollar makes U.S. exports more expensive to foreign buyers and imports to the U.S. cheaper. National Forecasts for 2017 The right column of Table 1 gives 2017 forecasts for the nation on the key economic measures. Most of the growth measures show improvement over 2016, suggesting an economic bump from the likely combination of tax cuts and increased federal spending. However, "costs" of this program will be higher interest rates, higher inflation, and an increase in federal borrowing. These costs could be reduced or avoided if the economy grew sufficiently faster or if federal spending was re-arranged so as to not require additional borrowing. 6