Well it’s official: Donald Trump is the 45th president of the United States of America. Yes, I know, it’s almost unbearable to believe. The deal had been sealed by Trump and Obama’s meeting at the White House on Friday in what was the most awkward first encounter in the history of most awkward first encounters.
The news of Trump’s astonishing victory over Hillary Clinton surprised even the most paranoid of conspiracy theorists. The two had ran the most intense presidential campaigns in modern history, with record-breaking millions of dollars spent by each camp. However, the likelihood that a bloated clown like Donald Trump – with as much experience as our very brief former Minister of Finance, Des “Weekend Special” Van Rooyen – could actually command the most powerful nation on the face of the earth is something neither Clinton nor Trump (judging by the look on his face when the results came in) could have comprehended. It took the entire world by a storm and the markets quickly swirled out of control in response as uncertainty spread like wild fire. Ironically – or should I say, symbolically – Trump’s first achievement as presidential-elect of the United States had been a financial crisis, somehow prophetic of his economic policy, which, if I may borrow a few words from his lexicon, will be a “catastrophic disaster.”
The hallmark of this year’s US presidential elections had been economic prosperity, or more specifically, the tax policy. Hillary Clinton argued that taxes should be raised on the rich as a measure to stimulate economic growth in the lower and middle classes. She stressed that, with enough financial support, the middle class had a potential to create millions of jobs while not adding a single dollar to the US’s national debt. The plan was intended as a refined continuation of President Obama’s tax plan after the 2008 financial meltdown. Obama’s plan had resulted in a historical 6% steady growth in employment over the past eight years. In addition, Clinton also argued for renewed international trade policies with America’s trading allies in order to protect domestic production while maintaining amicable relations.
Donald Trump’s tax plan, on the other end, was a total opposite. Trump argued that big firms, such as Ford and General Motors, were leaving the United States because the country imposed ridiculously steep taxes and unnecessary regulations upon them. These companies, Trump argued, were taking millions of jobs out of the US to other countries such as China and Mexico. Thus he stressed that when he becomes president, he is going to cut taxes and regulations on large corporations by more than a half. Trump then solidified his argument by asserting that if taxes were low on big businesses, then they would not have any reason to leave the US, essentially taking money out of the country. He also lamented that these businesses were, and I quote, “ripping” the US off because they were moving to countries that America has a preferential trade agreement with, most notably Mexico, with absolutely no import tariffs imposed on them when they export their merchandise back to the US. In addition, Trump believed that adopting a sort of protectionist policy and easing up on the red tape that is standard requirement for anyone either looking to or already operating a business in America would create tremendous job opportunities and economic growth not seen since Ronald Regan’s time, his words not mine. The only hiccup to this tax plan, of course, is that we are all well aware that tax cuts have never stopped large corporations from keeping production costs at the bare minimum, and yes, even it means laying thousands of people off their jobs. And this brings me to a list of possible scenarios that will more than likely unfold because of Trump’s disastrous tax plan.
- Throughout his campaign, Trump has stressed his desire to obstruct international trade under the pretence of putting America’s interests first. The danger of this anti-free trade policy is self-explanatory. Trump’s protectionist tax plan will resurrect Mercentalism, the likes of which will reverse America’s economy back to the Middle Ages, increasing the already alarmingly wide income gap between the rich and poor. In addition, his ill-conceived tax plan will add an enormous amount to America’s chocking national debt as US imports will decline, inadvertently lowering government revenue from import tariffs.
- The idea that cutting taxes on large firms somehow stimulates job growth is the biggest pile of bollocks I have ever heard. Although on paper it seems plausible, in reality it is anything but. The truth is, realizing positive economies of scale is every business’s objective. Businesses by their nature will always seek to minimize costs as much as possible, whether or not the tax rate is high or low is beside the point. In essence, employment trends are unlikely to be impacted by Trump’s tax plan, at least not in a positive light.
- The rapid growth in domestic output and exports, coupled with a sharp decline in imports will raise the value of the dollar significantly. This may sound like good news except that, well, it isn’t. You see, a dollar appreciation will raise input costs, which in turn will be directly transferred onto final goods and services, hiking prices on pretty much everything, and ultimately resulting in what is commonly known as inward inflation. Inflation is not something any sane president would want on their term in office, then again the man in question has never been known for his exceptional logic.
- The inflation mentioned in the previous bullet point will make American exports less competitive in global markets, thus putting a tremendous dent in the country’s balance of trade account. Although the country may see a positive balance of trade or trade surplus in the short-run, Trump’s tax plan will more than likely result in the greatest trade deficit in American history in the not-so-long run.
- The final repercussion of Trump’s disastrous tax plan will be certain retaliation by such countries as China and Mexico as they impose a full-blown economic embargo on all American goods, paving the way for other countries to set in motion global sanctions on American goods as well. The American economy will slump to its lowest as national debt, trade deficits, inflation and ultimately unemployment will be at an all-time high, essentially igniting the modern day Great Depression.
All of this might seem like something out of a dystopic Stephen King novel, but with someone like Donald Trump at the helm of the world’s economic hub, soon fiction will start depicting reality. As an economist, the election of Trump as the commander-in-chief of the United States symbolizes the end of free trade as we know it, and while this may have enormous benefits, its downfalls are just as equally unpleasant. The events of this year, starting with Brexit and of course Trump’s election, will go down in history as the tipping point when the world moved from a globalization disposition to a harsh era of economic dystopia.