U.S. tax cut not likely to have significant effect

Updated 2018-03-19 09:41:05

Rising debt a threat to the country, world: expert

The U.S. tax cut will not have a big effect in stimulating the country's economy and it will add to the federal government's rising debt, which is a big threat to the stable development of both the U.S. and the global economy, a Chinese economist said over the weekend.

The tax reform bill signed by U.S. President Donald Trump in December 2017 will not significantly stimulate U.S. economic development because such a tax cut would only play a big role if a country's economy lacked effective demand, Yu Yongding, a research fellow with the Chinese Academy of Social Sciences, told a meeting in Shanghai on Sunday.

Yu said that as the U.S. economy is very robust, it is hard to see a strong effect from the tax cut in this situation.

But it will add to the budget deficit, Yu said, forecasting "the U.S. will see a continuous increase in debt in the future."

The combined debt of the U.S. government has exceeded trillion for the first time, data from the U.S. government showed on Friday. The country's debt hit trillion for the first time six months ago.

The U.S. debt is equivalent to more than 105 percent of the country's GDP, close to the record level of 106 percent, which was recorded in 1946, said Yu.

Yu noted that U.S. debt has been rising steadily since the 1970s, and it will continue to climb due to the tax cut.

"We need to pay close attention to the growth of U.S. debt in the future," he said.

The increasing U.S. debt is a big challenge for the sound growth of the U.S. and the global economy, Yu said, noting that "China is one of the largest creditors of the U.S. and we should make full preparations to deal with the situation."

Yu said that the U.S. tax reform, combined with the Federal Reserve's increase of interest rates, would increase the U.S.' current account deficit and capital account surplus.

But it is quite hard to say whether the U.S.' balance of international payments will improve or worsen, or whether its current account deficit can attract enough financing without changing the exchange rate of the U.S. dollar, according to Yu.

"We cannot make a conclusion about the changing trend of the exchange rate of the U.S. dollar," Yu said, but the well-known Chinese economist noted that "we do not have to panic."

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