What if Trump wins? Implications for the U.S. and global economy

18/03/2016

What If Trump Wins

What If Trump Wins

Donald Trump, now the favoured U.S. Republican contender for the presidential nomination, has surprised critics and galvanized middlebrow support with his ‘Make America Great Again’ campaign rhetoric.

While Trump still must overcome a number of obstacles before he can muscle his way into the Oval Office, the possibility of a Trump presidency is an increasingly likely scenario.

As responsible participants in the global economy, we must all critically consider the implications of his controversial policies for economic reform.

Can the Trump plan make America great again? Let’s take a look at his three main economic proposals – tax, immigration and trade reform – to find out.

Tax Reform

As with most Republican candidates, the central pillar of the Trump economic plan is a significant series of tax cuts. Highlights of the Trump tax plan include abolishing income tax for 75 million households earning less than $50,000 per year and cutting corporate taxes from 35% down to 15% to spur economic growth.

Trump has repeatedly assured Americans that his tax plan will return America to a “dynamic economy,” and his campaign asserts that the plan is ‘one of the best and most favourable in the world’.

What’s not to like?

Unfortunately, institutes across party lines have denounced the plan as regressive and harmful to the American people.

The left-leaning Citizens for Tax Justice have asserted that the plan will cost $12 trillion to the U.S. economy over the next decade, and the more conservative Tax Foundation has suggested that the cuts will contribute $10 trillion to the federal deficit over the same period.

Additionally, despite Trump claiming that:

there will be some people in the upper echelons who are not thrilled [with my plan],

The Tax Policy Centre asserts that Trump tax reform will only help the poorest 20% of Americans save $128, or 1% of after-tax income, while the wealthiest 1% will save $275,000, or 17.5%.

Tax cuts may be popular, but a range of institutions argue that Trump tax reform is neither beneficial to the US economy nor equitable as he claims.

Immigration Reform

Trump has proposed building a wall between the United States and Mexico and deporting some 11 million illegal immigrants already in the country.

While his critics have denounced these policies as xenophobic and racist, Trump claims that his plan is designed to improve the US economy and provide more opportunities for lower class Americans.

Trump’s campaign asserts that the “influx of foreign workers holds down salaries, keeps unemployment high, and makes it difficult for poor and working class Americans – including immigrants themselves and their children – to earn a middle class wage.”

Can immigration reform improve the U.S. economy?

Again, the answer is probably not, and for three very good reasons:

First, the jury is out on whether cheaper undocumented labour is harmful to the prospects of average Americans.

A 2003 study found that illegal immigration has decreased U.S. wages by 3%, but more recent research compiled by Berkeley economist David Card asserts that:

the impacts of immigration on native workers in the United States . . . have been very small.

Second, the Trump plan does not take into detailed account the costs of securing and maintaining a hardened Mexico border, and on March 6 the American Action Forum placed these costs at between $420 billion and $620 billion annually.

Third, the National Farm Worker Ministry estimates that 60% of all agricultural workers in the U.S. are undocumented migrants, and it is not unreasonable to assume that the deportation of this cheap labour force would place a burden on the country’s food production and consumption prices.

A final ironic and unintended economic consequence of the Trump immigration reform plan could be a “brain drain,” as educated and potentially wealthy liberals look to escape a controversial Trump presidency, namely by moving to Canada.

In the spotlight of this emigration movement is Cape Breton Island, where radio broadcaster Rob Calabrese has built a website encouraging American “refugees” to consider Cape Breton as a new home away from the sphere of Trump’s influence.

The project began as a joke, but Calabrese has since fielded inquiries from a number of potential emigrants, including a Cornell University professor.

Though tongue-in-cheek proclamations of emigration abound during times of political controversy in both Canada and the U.S., the possibility of well-educated Americans and even celebrities leaving the country due to a divisive Trump presidency could present economic consequences.

Trade Reform

The third arm of the Trump plan to make America great again is tackling trade with China, his favourite boogeyman.

Regarding China, Trump has stated that:

What they’ve done to us is the greatest single theft in the history of the world . . . they’ve taken our jobs, they’ve taken our money, they’ve taken everything.

To Trump’s credit, the U.S. trade deficit with China is higher than ever before, and studies have suggested that the U.S. has lost up to 2 million manufacturing jobs to China since 2000.

Trump plans to address these injustices with a number of strict measures, including declaring the country a currency manipulator, eliminating its export subsidies and ending Chinese violations of U.S. intellectual property.

Once again, Trump has his critics, and they denounce his plan as not only unrealistic, but downright hazardous. Michael J. Boskin asserts that “Trump’s ideas are dangerous and would reverse decades of beneficial bipartisan American leadership in trade liberalization.”

Many are concerned about the escalated possibility of a trade war between China and the U.S., an unprecedented economic conflict that could cripple the global economy. Key criticisms of the Trump position are that he assumes he can simply negotiate China into disregarding its own sovereignty.

Plus, he fails to acknowledge that the bilateral trade agreements he despises, such as the TPP, are the primary mechanisms of securing concessions and intellectual property protections.

Responsible citizens should be very concerned of Trump playing trade war chicken with China, because the future of the global economy is at stake.

Donald Trump is closer to the Oval Office than nearly anyone could have predicted.

Though his campaign is founded on the principle of making America great again, critics across the political spectrum are more than skeptical about the greatness of the economic plan Trump is proposing.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Author: Gavin Luymes

Gavin Luymes is a freelance writer working for Ashton College, an accredited post-secondary institution offering focused, flexible education options for those wanting to upgrade their skills or change careers. When not writing, Gavin enjoys spending time on the slopes and in the hills.

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