Friday, 27 January 2017

The Trade Trouble With Trump's Protectionist Views

Albeit Trump shares the protectionist economic view of some of America's Founding Fathers, the trouble is that his trade proposals are much more extreme.

Trump wants to protect American manufacturers by taxing products that are made overseas and then sold in the United States. Many economists fear that this antagonistic approach will start trade wars that would ultimately harm the American economy. Withdrawing from NAFTA and the TPP, or imposing a 35 percent tariff as Trump has threatened, would have a negative effect on the USA.

Raising tariffs on imported goods, such as shoes and clothing made in China, will drastically increase prices for American consumers. Moreover, the countries that Trump's administration singles out will be more than likely to retaliate with higher tariffs on American imports. These protectionist actions by the U.S. would trigger a trade war, which would drive up prices and hurt American consumers by reducing their purchasing power. Demand would fall, and companies would need fewer workers. It's "a lose-lose scenario."

Early moves by President Trump highlighting a protectionist stance on world trade have given investors reason to rethink their asset allocations. Many are worried that Trump’s anti-globalisation mantra will spread protectionism around the world, erect trade barriers, and curb global economic growth.

Trump has said his protectionist policies will keep "jobs and wealth inside the United States" . He has promised to increase employment, saying his plans for lower taxes, trade barriers and tighter immigration rules would lead to stronger economic growth. As with the deficit, many economists warn his plans could make things worse not better. Much of what he is suggesting would hinder economic growth and in turn employers’ ability to create new jobs.

It’s clear that Trump hopes to return the United States to its protectionist past. The trouble is that in those days - 200 years ago, the American economy was still small enough that it could grow by focusing inward. Today, the United States' economy is a global one. U.S. companies have had to expand production, as well as their consumer base, across the world to keep growing. Albeit Trump shares the protectionist economic view of some of America's Founding Fathers, his proposals are much more extreme.

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