Effects of Donald Trump’s Trade Policy

2592 words (10 pages) Essay in Economics

14/02/19 Economics Reference this

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Normative Effects and Prospects on President Donald Trump’s Protectionism

Abstract

A newly elected president of the United States of America, Donald Trump has been acknowledged for several radical policies. Concerns from all over the world for his protectionism has risen as he took steps to enforce policies. The United States has been reviewing free trade agreements (FTA) with numerous countries, attempting to impose a tax on foreign products so, domestic manufacturing industries could able to compete and outsell. In short term, it would create the instant profit. There were mainly two concepts of protectionism; imposing a tax on foreign products, and limiting the number of imported goods. However, there were professional worries internationally, even inside of this country as well. There were feasibilities to lose domestic corporations’ willingness to invest in research and development and competitiveness in other countries, resulting in degeneration of domestic industry.

Foundation of Study

Donald Trump’s Presidential election attracted worldwide attention. There are lots of views that are conflicting each other on the new U.S President’s political outlook. Protectionists argue that protection will lead to greater prosperity and strength (Merry, 2016). Trump’s base is profoundly suspicious of American engagement abroad. He opposed stubbornly of Clinton on foreign policy. He has doubted what the U.S. gets out of core alliances with NATO, Japan and South Korea (Powell, 2016). One the other hand, anti-protectionists assert that the changed policy will boost the rate of inflation and ultimately depress U.S exports. This new condition is an ill bode for the proposed twelve-nation Trans-Pacific Partnership, designed to usher in a new generation of free-trade deals (Merry, 2016). This research examines how Trump’s shift in trade policy will affect U.S.

Background of the Problem

Protectionism is the opposite term with free trade that is trying to close and isolate its country by giving control, like taxing goods and services made from overseas. Trump wants to protect American manufacturers and workers by throwing away the free-trade principle. All of the policies regarding international trade, protectionism in this research, such as the decision to withdraw from the TPP, decision to renegotiate NAFTA and FTA, and decision to impose great amount of tariffs (Panchak, 2016), contain strength and weakness, and entail positive and negative impact on global economy: Therefore, politicians must undergo prudence process of thinking and meeting in every respect, includes (a) advantages on protectionism, (b) disadvantages on protectionism, (c) opposite policy’s merits and demerits (free trade), and (d) solution.

Problem Statement

The United States, as well as other various countries, had taken action to protect their home industries after the global financial debacle. The international financial crisis caused not only economic uncertainty about the world economy, but also delay on economic recovery after the global financial debacle. Especially, the United States posted a huge amount of trade deficit for several years (Hannon, 2016). Trump attributes the cause to other partner countries. For example, he blames that China had been manipulated their currency selfish interest, and exerts his pressure to administration to trading partners. “Donald Trump says he’ll declare soon after he takes office that China is a currency manipulator because it is devaluing the yuan against the dollar. He may want to rethink that. These days China is intervening in the capital markets to prevent the yuan from going into free fall. The currency is now close to an eight-year low, down 12% from its peak in January 2014 (Wall Street, 2016).” Today’s enthusiastic debate over US trade policy with the vast tariff debate of the late 19th century. The 2016 presidential campaign trumpets the return of protectionism. Mirroring the paranoia of Republicans past, those who support free trade initiatives are now charged with being part of a great conspiracy to attenuate American democracy (Palen, 2016). The central research question examined in this study is the following: How will the revised policies, originated from “Make America Great Again” campaign, affect the U.S and other countries?

Presentations of Findings

Protectionism helps domestic industry in competition by charging high imported tax to foreign products. There is unfortunate story that imports killing the Mon Valley caused by the free trade. It states, “The more I read of local businesses and factories shutting down, workers being laid off, towns dying as imports soared. The more I began to ask myself, the price of free trade in painful” (Merry, 2016). However, Protectionism’s negative effects would hit even more to the U.S. – the world’s largest economy – while restricting export markets, increasing prices of imported goods and services for consumers and producers. Even for the U.S., three quarters of the world market in financial terms, and 95 percent of the world’s customers in people terms, lies outside its borders, it is not just a domestic matter. A protectionist U.S. economy focused only on its domestic market can never match the advantages of orientation to a global economy. For Germany, 95 percent of its potential market is outside its borders, for Brazil 97 percent, for Australia 98 percent, and for Thailand over 99 percent. Such countries, therefore, applaud Xi Jinping’s unequivocal defense of globalization, not because of deference to China but from national self-interest because globalization really is “win-win” (Ross, 2017). One of the most important factor when choosing products among different brands, price takes a key role. No one would not want to pay more for the same quality of goods. For example, if the custom of the United States of the America imposes to the automobile of the Japan, not many customers want to buy Toyota’s Camry for forty thousand dollars when you could have Ford’s Fusion with the half price of Japanese cars’. In a first glance, it looks feasible and domestic companies gain the advantages in competition. However, there is a possibility that domestic corporations lose the willingness to invest in research and development (R&D) because they do not need them. If you can win the competition with less or no efforts, you do not want to struggle in R&D. There is an English example in the early era of the car industry. In England, when the automobile was developed in the 1990s, horse cars and automobile were competing. Due to the repulsion of horse car owners, the House of Parliament enacts the law limiting the speed of automobile that cars cannot outrun the horse cars. The law had been enforced for twenty years, leading the failure to compete in the automobile industry. This example does not relate with the protectionism, but it gives a lesson when there is no competition, the competitiveness do not get stronger nor stay the same, it degenerates. In order to remain our competitiveness, ironically, domestic companies should struggle with others.

Worse thing than losing competitiveness is other countries can do what we do. If we can impose taxes on foreign imports, they also can impose taxes on American products. Smooth-Hawley Tariff of 1930, for instance, which raised duties on some twenty thousand imported goods, in some instances to record levels. American economists had petitioned the president to veto the bill as economic poison. “Countries cannot permanently buy from us unless they are permitted to sell to us,” said the economists, echoing the views of that rustic Texan, Roger Mills, and the more we restrict the importation of goods from them by means of even higher tariffs the more we reduce the possibility of our exporting to them (Merry, 2016). Furthermore, we are already losing money on foreign markets, and if we lose our competitiveness for imposed taxes, we would never compete with anyone. The functioning structure of American economy is not supported by manufacturing. We make fortune from the Information Technology (IT), out of state technologies, and finance. For example, Trump administration is reviewing the FTA between South Korea and the United States. We think we are not making fortune for the military we offer for them, and the products we export to them. Stupidly, it is not true that even though we are losing a fortune in trading our goods, but we sell our weapons. I am not talking about small firearms, but I am talking about the fighter flights, Terminal High Altitude Area Defense (THAAD) systems and so on. The deployment of Terminal High Altitude Area Defense is in South Korea. The approval of the South Korean government to deploy THAAD in the country in response to the intercontinental ballistic missile (ICBM) test of North Korea (LEE, 2017). At the end, we win the war while we lost some battles, losing hundreds of million dollars while earning hundreds of billion dollars. For another example, Mexico is currently the 3rd largest goods trading partner of the US, with $531 billion in bilateral goods trade during 2015. Goods exports totaled $236 billion; goods imports totaled $295 billion. “Interestingly, 40 per cent of the parts in a typical Mexican product originate in US, illustrating that Mexico (and other countries such as Canada) are integrated into the US global supply chains, according to the Commerce Department. Hence, around 6 million US jobs depend on trade just with Mexico, according to the US Chamber of Commerce. Thus, tariffs on Mexican products could ultimately lead to loss of jobs in the US and degenerate the US economy, in addition to the impact on consumers (Shawn, 2017).

There is a way to implement the protectionism that limiting the number of foreign goods. If there is a limit of the number of imports, there are limits of the fortune that the foreign countries would make. Likewise, it is a very shortsighted idea, resulting in degeneration of domestic industry again. The invisible hand is well-known terminology for the free market that the economy is controlled by the supply and the demand. Every time the government tried to manipulate for its own favor, the results did not follow the expectation like a football ball. Multiple economists and analysts expressed their pessimism about the potential benefits of protectionism, a trend that is expected to increase in line with populist political movements in Europe and the US. “Past practice shows that trade protection is both costly and ineffective. High tariffs translate into higher prices both for consumers and companies. Protectionism disproportionately hurts poorer households who spend a greater share of income on traded goods,” said Gary Hufbauer, Senior Fellow at the Peterson Institute for International Economics, and former deputy assistant secretary for international trade and investment policy of the US Treasury (Shawn, 2017). There is a point that the United States was a young and lively nation, rich in resources and geographical advantages, populated by a robust and expansionist people, beneficially situated upon the American continent, facing two oceans. Its destiny seemed secure irrespective of fiscal policies at any given time or the political passions unleashed by the tariff issue (Merry, 2016).

Reflections

Trumps protectionism would lead negative impacts on domestic and international industries. We must think if we can do on foreign goods, then they also can do on domestic exports like imposing taxes or limiting the number of products. I admire his effort to vitalize United States’ economy with politics, however, his protectionism has too many risks that might result in the collapse of the economy like the one of Japan in the late 1990’s. There was a long-term stagnation and instability of the Japanese economy in the 1990s (so called “lost decade”). Especially of the protracted deflation and insufficient final domestic consumption, the asset price bubble collapse at the beginning of the 1990s has probably activated and amplified impacts of other complicated processes in the economy. The blast of the bubble has negatively impacted both Japanese financial sector and production and investment activity of Japanese companies and so on (Zuzana, 2012). It is not the government who make decisions to make the America great again with the strong economy, but it is the corporate themselves with lots of creative ideas and competitiveness to compete with foreign businesses.

Conclusion

To sum up, such a considerable alteration in policy, strategy and tactics will hardly be easy. It will meet strong headwinds in today’s domestic political climate (Ezrati, 2016). We do not know the consequences of our protectionism policy to the domestic economy and international markets. Although there are concerning voices against the policy, quoting trial and error of foreign countries, we would not know the results until we know the result. Some dislike not the only protectionism for losing our ability to fight against others, but also eventually we lose the competition at the end as result of a negative cycle of degeneration induced from eliminated benefits from the fair competition. These might be the reasonable concerns, however, we cannot ignore the instant impact the protectionism would have to our economy because the crowd has spoken with the media of vote. Trump was elected thanks to his radical policies, including the protectionism, and that is what the majority of people want in the United States. As the president of this country, he has to implement what he promised to us during the election. If the protectionism is going to lead bad sequences of our economy, he should reconsider the foreign policies but that is not the end of his job. He needs to come up with different policies pertaining to both domestic and international businesses to facilitate to get out from the era of economic depression. When you watch the news, there are still protestors against Trumps administration, nevertheless, if he can make America great again, the voices against him would disappear along with the concerns questioning his ability as our president. Politics and economy are like betting for the gamble. Even though you have all data and calculated expectation, still players bet for the probabilities. What they do is eliminate the unlikelihood and maximize the probability of what they bet. Protectionism is a gigantic bet playing where participants are coming from the all of the worlds. Alea Iacta Est; it is a dice is cast in Latin. Trump’s protectionism would have impacts on the domestic economy and foreign countries. We do not know the future yet hope these policies make America great again.

References

Ezrati, M. (2016). Defending free trade. National Interest, 144, 51-55.

Hannon, P. (2016, November 26). Global trade rebound threatened by protectionism after trump victory. Wall Street Journal, 1.

LEE, B. (2017). THAAD deployment in South Korea. Harvard International Review, 38, 34-37.

Merry, R. W. (2016). Protectionism in America. National Interest, 146, 28-36.

Palen. M (2016). The return of protectionism. History Today, 66, 6.

Panchak, P. (2016). Trump and trade. Industry Week/IW, 265, 6.

POWELL, B. (2016). How’s that gram you?. Newsweek Global, 167, 12-15.

Ross, J. (2017). Weeks when decades happen: Global thought leadership passes from the U.S. to China at Davos. China Today, 66, 40-43.

Shawn, T. (2017). The promise and the peril of the Trump economy. Fortune, 175.

Zuzana, S. (2012). Japan’s lost decade: On the development of the Japanese economy in the 1990s. Journal of International Relations, 4.

(2016). Trump’s Chinese currency manipulation. Wall Street Journal.

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