Build a wall, damage the US dollar?

By Tim Strube

Paul Donovan, Global Chief Economist at UBS Wealth Management asks "The Mexican wall is to be built. The Dow hit 20,000 in an indulgence of exuberance at the thought, yet the US dollar softened immediately after the announcement. Why?"

"The wall is a positive for profits in key parts of the construction sector - it is a straightforward demand boost. Go equities. The wall is also likely to increase pressures on the fiscal deficit of the United States (this project is estimated to require three times the resources of the Hoover Dam.

Fine if you are in the grip of a 1930s Depression with plenty of spare capacity. Less fine in the current environment of full employment). If we assume that migrant labour, imported steel and imported cement are not used in the construction of the wall, then the necessary resources will have to be diverted from elsewhere in the US economy. Prices of labour and resources are likely to rise - extrapolating from the Hoover Dam, the wall could absorb 2% of the civil engineering workforce - before any other infrastructure project is considered.

Click here to read Donovan's full statement.

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