The economic and foreign policies of the United States of America impact globally. President Donald Trump’s changes in economic and foreign policies would have repercussions on the global economy and in turn have significant consequences on the Sri Lankan economy as the US is one of Sri Lanka’s main export markets. However President Trump’s policies [...]


President Trump’s uncertain and unpredictable economic policies


The economic and foreign policies of the United States of America impact globally. President Donald Trump’s changes in economic and foreign policies would have repercussions on the global economy and in turn have significant consequences on the Sri Lankan economy as the US is one of Sri Lanka’s main export markets. However President Trump’s policies are yet uncertain and unpredictable.

Inaugural address
In President Trump’s inaugural address there were indications of Trump’s thrust in policies that re-echoed his electoral rhetoric. Trump emphasised: “We’ve enriched foreign industry at the expense of American industry, subsidised the armies of other countries while allowing for the very sad depletion of our military. We defended other nations’ borders while refusing to defend our own and spent trillions and trillions overseas while America’s infrastructure has fallen into disrepair and decay.”
He accused America’s elites of having made “other countries rich while the wealth, strength and confidence of our country have dissipated over the horizon”. Factories were closed “with not even a thought” for the millions of workers left behind.

Protectionist trade
Much of the concern about Trump’s policies was about his deep conviction of the benefits of trade protection for America. “Protection” he said “will lead to great prosperity and strength.”

The objective of Trump’s protectionist trade policies is to bring back American investments to revive industries in America. Trump vowed that every decision “on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American borders,”

Impact of protectionism
It is not clear whether protectionist policy would be general or selective. A trade war is unlikely, but trade frictions are expected. US protectionism would have a serious impact on China and other economies. The US is a significant market for Sri Lanka’s manufactured exports, especially garments. Any restrictions in trade could have a serious impact on the Sri Lankan economy unless a preferential agreement is worked out.

He cancelled the Trans-Pacific Partnership (TPP)), which he criticized as being bad for U.S. workers. In contrast, President Obama argued that TPP was a trade deal with 12 Pacific Rim countries that would remove 18,000 tariffs on U.S. exports.

Trade misconceptions
Trump’s protectionist policy is based on a lack of understanding of today’s international trade. As vividly explained by Thomas L. Friedman in his book The World is Flat, export commodities are not manufactured in a single country. Each country contributes to a value chain to produce a final product. The country of manufacture is therefore misleading. For example a computer that is assembled in the US would have components from Malaysia, India, Thailand, Singapore Mexico and other countries.

Yet US protection could raise costs of production and jeopardise many economies as the US is the biggest market for their manufactured goods. Therefore global economic growth is likely to slow down, though the US economy may not benefit either, as higher tariffs would increase consumer prices. Trump views much of America’s economic woes being due to low cost imports. However these imports kept the cost of living low of the average American.
Big agenda
David Horowitz’s new book, The Big Agenda: President Trump’s Plan to Save America that was released a few weeks before Trump’s inauguration reveals the “first 100 days strategy”. Horowitz appears to have been privy to Trump’s economic policies. According to Horowitz, Trump’s key priorities for the economy include: better trade deals, energy drilling, tax reform, and infrastructure spending.

Energy drilling
According to Horowitz “President Trump will promote U.S. energy independence to thwart the left’s agenda to make America dependent on global partners whose heartfelt hope is to undermine America.”

Tax reform
Trump wants to create better incentives to invest in America by reducing taxes to 10 percent for US companies to return and invest their trillions in overseas cash to U.S. shores. He may impose a border tax of 40 percent on firms that leave the US to locate elsewhere.

Infrastructure spending
Horowitz says that Trump plans to improve America’s transportation and communications facilities to make the country a better place to do business. Horowitz contends that “If the economy grows as it will under Trump, there’s going to be a lot more money to spend.”

Trump’s economic policies are novel and nationalistic. However nationalism is often a motivator of bad economic policies. Most reputed US economists are of the view that Trump’s economic policies are a disaster as they do not bear a connection with the current economic context.

The US economy is growing at nearly 4 percent and unemployment is at 4.7 percent that is almost full employment. Trump has contested these figures on the grounds that many of the unemployed are not seeking jobs as they know they can’t find them. More likely there is unemployment in certain states and among some types of employment, as among coal miners. Adopting general economic policies, such as large government spending to increase employment could be inflationary. Even before Trump’s election the US Federal Reserve Bank became concerned with the prospect of handling a problem of large fiscal expenditure.

Industrial policy
Trump promises to revive manufacturing in America to create jobs by protectionist policies to safeguard US manufacturing and by establishing manufacturing plants. Higher tariffs on imports would increase costs of many consumer items and import substitution is illogical as many of the items imported are not the kinds of products that are appropriate for production by a high wage economy.

Furthermore industries that could be established are highly automated industrial plants. The loss in employment in the US was due to automation than closure of industries.

Coal mining
The revival of coal mining is an important plank in Trump’s economic policy agenda. Again it is a misjudgement of actual conditions. The coal mines have been closed owing to a lack of demand for coal. As the world is shifting away from coal it is impractical to revive coal mining.

Wait and see
Much of this assessment is based on likely policies of President Trump. His actual policies are still to be disclosed. Also, President Trump could be quite different to candidate Trump. He could turn out to be more moderate and pragmatic than his electoral rhetoric indicated.

President Trump would be guided by his advisors, the bureaucracy, Senate and House of Representatives. Although both houses are controlled by a Republican majority, Trump’s policies differ from Republican policies. And above all the US constitution is supreme.

Leave a Reply

Your email address will not be published. Required fields are marked *


Post Comment

Advertising Rates

Please contact the advertising office on 011 - 2479521 for the advertising rates.