Donald Trump: American Dream Coming True?

Posted by: on May 13, 2016 | No Comments

Donald Trump's Trade Policies Are Likely to Cause More Harm than Good

Donald Trump has been referring to the American Dream being over. And, of course, about how he would play an instrumental, as President, in reviving this dream. I wonder if Donald Trump actually understands the American Dream, and whether his policies are in synch with it.

America has been long known as the land of opportunity. The core values of this country include:

  • Individualism – emphasis on individual initiative, individual expression, etc
  • Materialism – the “right” to be well off and physically comfortable
  • Work and leisure – work is the basis of power, idleness seen as a threat to society, leisure is considered a reward for hard work
  • Competition – encourage free makers, little or no protection from competition,
  • Action and achievement – emphasis on getting things done, planning and setting goals, focus on function and pragmatism

Against this backdrop, let’s have a look at some of the policies of Mr. Trump, who is the Republican candidate in the US Presidential Elections to be held in November 2016, and will be standing against Hilary Clinton, the Democratic candidate.

The Good

Some of Trump’s policies are aligned to these values. After all, he has spoken about reducing taxation, as this will help the economy by giving a boost to consumption, his policies on trade are likely to backfire on the American economy.

The Bad

Trump has vowed to impose high import tariffs on good from Mexico and China. Doesn’t sound much like free trade to me! This policy could severely hurt American manufacturers, who are dependent on global supply chains that supply them with parts.

Donald Trump has argued that other countries are unfairly taking advantage of the US through a combination of high taxes on American products and devaluing their own currencies. According to Trump, the solution is to levy high tariffs on the goods of any country he believes is treating America unfairly.

Trump has called for tariffs of 35% on Ford vehicles from their plant in Mexico and 45% on Chinese goods. He has also proposed tariffs on other specific goods produced by American companies on foreign soil, such as Carrier air conditioners, which are made in Mexico.

The Ugly

Experts say such restrictive policies will do more harm than good to the US economy. American businesses and consumers bought $481.9 billion in Chinese goods in 2015, about one-fifth of all imports and the most from any country.

The impact of Donald Trump’s high import tariff would not reverse this trend. Firstly, China and any other countries that are at the receiving end may choose to retaliate by imposing tariffs on American goods. Secondly, American manufacturers would suffer. According to Caroline Freund, a senior fellow at the Peterson Institute for International Economics, extreme tariffs would also hurt American manufacturing — the very sector that Trump says he seeks to bolster — by raising the prices on production inputs sourced from abroad. Steel from China, for example, would become significantly more expensive for more US firms.

Thirdly, a tax on goods imported from China would disproportionately hurt the poor by pushing up the prices on many of the products they most frequently use, according to Freund. Experts claimed that Trump’s strong measures could start an international trade war. For example, if China were unable to sell to the US, it would try and sell them at an even lower price in other countries, who would then oppose China’s “dumping” of cheap goods and impose tariffs of their own.

The end result is high prices around the world, and a slowdown in international growth — or even an outright recession.

Leave a Reply