At a moment when the French President arrives in the United States, attention will be focused on his counterpart personality and the ability of both men to understand each other despite their age and character differences. It is essential if they want to adopt common positions about the many current economic and geopolitical challenges affecting the international scene. It should also give the opportunity to have a better understanding of today America. We are amazed by the achievements of these companies which have changed our daily life with their software (Microsoft), their smart phones (Apple), their platforms to have access to information (Google) and their new kind of exchange and distribution models (Amazon, Uber) or more simply with their new products (Tesla). But we see, in the same time, the reappearance of a brutal racism, of a spreading violence which mobilizes the young against it. Obesity is increasing and life expectancy is declining. Where is the real America, in dreams about space tourism and autonomous vehicles or in the real world with the rifle fires in schools? It is frequently said that the country gives, in advance, a good representation of what will be Western societies ten or twenty years later. Should we be amazed or worried? Do we have to especially fear a new crisis as the one which blew up ten years ago?
American companies have definitely won the battle of the dream. Market capitalizations of the biggest ones, Amazon, Apple or Alphabet, the parent company of Google have reached an unprecedented level with more than 600 billion euro each which is equivalent to four times the value of the biggest European companies. They have known how to convince investors and savers to give them their money. But is their attractiveness going to last? Everything will depend of the reaction of their customers. Nobody can imagine to abandon his smart phone or to renounce to consult his bank accounts on line. Is it going to be the same to buy a book? Are bookstores condemned to become a place of the past? Have we abandoned forever to go shopping in order to choose the products we need and are we going to prefer to spend an hour in front of a screen and to wait for the delivery? Are these practices a short-lived fashion or a durable transformation of consumer behavior? Due to the market caps of the related companies in the U.S., the answer to these questions is important. It is the same about new transportation modes. Electric passenger cars, despite the massive subventions they receive are very far from convincing users. They represent less than 1% of car registrations in the U.S. Despite of that, Tesla has the same level of market capitalization (50 billion dollars) as the two major American car manufacturers, General Motors and Ford.
To be successful, an innovation, whatever it is, once the emotion provoked by its appearance is passed, must satisfy a lasting need and convinces potential customers about its usefulness. The current infatuation for start-ups, platforms of any kind and the Californian miracle is justified but it is unstable. The sudden awareness of the risks caused by the massive divulgation of fake news on some sites and the illegal exploitation of personal data constitute a first warning. Accidents provoked by autonomous vehicles and the uncertainties related to the legal working conditions under Uber-like status are another ones. That infatuation, which could be only short-lived, is occurring in an economic and social environment which is much less attractive.
First, there is the heavy foreign trade deficit of the United States which irritates so much Donald Trump and which incites him to take decisions he reverses a few months later but which dangerously affect international economic equilibriums. During 2017, the U.S. trade deficit reached 566 billion dollar, partly compensated by the services surplus (224 billion). Current account balance is in the red for an amount of 460 billion, more than 2% of GDP, and it is the case every year for a decade. In the same time, public deficits are rapidly rising. Regarding the Federal State, it would reach 833 billion this fiscal Year and approach 1000 billion next year due to the announced tax reforms. The State debt is only 77% of the GDP but we must add to it the debt of the local authorities (3 700 billion) and of public Agencies (1 300 billion). At the end of the current FY, September 30th, the American public debt will reach 24 600 billion dollars according to the latest evaluations made by the Office of the Congress. But, and the point is important, this debt is mainly financed, not by American savers but by foreigners which makes the country vulnerable to any confidence crisis and forces it to have long term interest rates three times higher than European ones. That weights on its expenditures and its foreign accounts since the debt is not locally financed. So there are many critics about that tax cuts policy which increases deficits at a time when American growth gives no signs of running out of steam.
These high interest rates have not prevented the dollar weakening in 2017 but that had no positive consequences on the trade deficit. Despite of the development of shale oil and gas production, which constitutes a major and durable success for the American economy, the trade deficit increased which means a weakening of the industry. France, where we are upset about the loss of several jewels is not an isolated case. The Nineties and Twenties American stars are stalling. GE market cap is inferior by near 50 billion to LVMH one. And IBM value is roughly the same than L’Oreal one. Volatiles declarations of the Trump administration which are not always easy to understand are worsening this situation. Major American groups are the first victims of that because it affects their strategic choices. The United States had decided to withdraw from the Trans Pacific Partnership, whose essence was the search of a coordinated answer to the challenges generated by the powerful rise of the Chinese industry. Recognizing his mistake, Donald Trump is now reversing but receives a mixed welcome from his former partners he unintentionally send into Beijing arms.
The announcement of duties on imported aluminum and steel, whose the two major exporters have been exempted a few days later, Mexico and Canada, to put a pressure on China and the toughening of sanctions on Russia have provoked a rapid rise of aluminum and rare metals like cobalt prices. That will harm American companies in two strategic sectors, aeronautic and car manufacturing and will not contribute to the rebalancing of the country foreign exchanges.
The weight of the United States on the world economy is so heavy that a crisis in this country would have repercussions outside and, atop of that, in Europe. It is what we have endured just ten years ago with the Lehmann Brothers bankruptcy. The exceptional valorization of the California dream companies and the heavy deficits, internal and external to which Washington doesn’t bring a remedy when it doesn’t worsen them, are major factors of worrying for Europe and for France. Let’s hope that these issues will be included in the discussions between the two presidents during this week.