With a substantial probability of Donald Trump winning the upcoming US Presidential Election, it has become increasingly important to run an analysis on how his protectionist policies would affect America. His policies may seem attractive, putting American’s interest first. However, his statements and shaky proposals are easy enough to be concluded by analysts and politicians that they would not work. Let’s take a closer look (with facts) on why his seemingly attractive proposals are doomed to backfire on America’s economy.
Affected Through Trade Restrictions
Trump hopes to solve the trade deficit with China by implementing 45% tariffs on Chinese goods to make them ‘stop stealing and to play by the rules’. If it happens, China may retaliate by imposing their own form of protectionism on American goods. This problem is compounded by the fact that China is America’s third-largest export destination, standing at 7.6% of its total exports.
To illustrate, as at 2015, electronic equipment made up a large component of American exports in China at US$19.8 billion, with aircraft and machinery at US$17.6 billion and US$15.9 billion respectively. Trade retaliation would be detrimental to America’s export sector and would counter Trump’s initial plan to retain jobs in the manufacturing sector.
History has shown how such protectionist measures is a temporary solution that does not solve the underlying problem that is, the declining competitiveness. America needs to find its comparative advantage to compete against China’s comparative advantage of low manufacturing costs.
Withdrawing From The Trans-Pacific Partnership (TPP)
Trump has stated clearly his dislike for the TPP due to the apparently unfavourable conditions towards America. He desires to withdraw the US from the TPP, which has not even been ratified yet.
At a recent campaign rally in Florida, Trump declared he would nix the TPP, which he claims would kill off American jobs.
“The Republican presidential candidate has said that countries in Asia such as China, India and Singapore are taking away jobs from Americans.”
“There’s never been a country that’s lost jobs like we do, so stupidly, so easy to solve,” he said.
TPP is a 12-countries trade deal with an aggregate population of 800 million (double the size of European Union’s market) and encompasses around 40% of world trade. The elimination of 18,000 tariffs aims to promote trade growth amongst the countries involved.
With this agreement, the US could gain better access to Asian markets in Brunei, Vietnam, Malaysia and Singapore which are also part of the Association of Southeast Asian Nations (ASEAN). The promising growth in several underdeveloped Southeast Asia (SEA) countries makes them a magnet for investments from the Western countries which are experiencing sluggish growth.
For instance, Vietnam is reported by the Organization for Economic Co-operation and Development (OECD) in June 2014 that real GDP growth of Vietnam is to remain strong at 6.3% and 6.1% in 2016 and 2017 respectively. If Vietnam can maintain a GDP growth of 7% over the next decade, it can follow the same trajectory as other Asian tigers like South Korea and Taiwan. Establishing a solid relationship with Vietnam is imperative for the USA if they are to benefit from the potentially rapid developments in the future.
On top of that, the strategic geographical position of Singapore serves as a gateway to the ASEAN region, enticing many American Small Medium Enterprises (SMEs) to set up operations in Singapore and probably expand to other ASEAN and APAC markets.
The US would gain the most from the TPP with analysts estimating that real incomes would rise by $131 billion and annual exports by $357 billion. This trade agreement is also a great chance for the US to continue setting the rules on trade rather than following a regime dictated by another country.
America’s Withdrawal Of U.S Troops From South Korea
One of the main controversial policies of Trump is his intention to withdraw U.S. troops based in South Korea and Japan with the reason that they would need to pay for U.S. presence in their respective countries. While this may seem economically sound for America on the surface, the long run consequences can run deep for two reasons.
Firstly, it will affect the American economy because it is relatively cheaper to base U.S. troops abroad than at home. Contrary to Trump’s comments on how Japan and South Korea are not paying enough for U.S. troops, they actually undertake a significant portion with Japan paying 75% ($4.5 billion) while South Korea contributes 40% ($870 million) of total costs annually.
In addition, they are major markets for U.S. arms exports. According to the Stockholm International Peace Research Institute, from 2014 to 2015, Japan and South Korea had imported $741 million $470 million worth of arms from the U.S respectively.
Secondly, Trump suggested that South Korea and Japan could develop their own nuclear arsenal to combat North Korea because if the U.S “keeps on its path, its current path of weakness, they’re going to want to have that anyway, with or without me discussing it”. This weakens the alliances with its most powerful Asia-Pacific allies.
Japan and South Korea have been excellent partners against nuclear proliferation. Such suggestion would inadvertently play into North Korea’s hands, justifying their reason to develop their own nuclear weapons. This would trigger a regional nuclear arms race that could cripple their alliances with the U.S and egg on a more aggressive China and Russia.
An immediate pullout of American troops from Japan and South Korea would reduce U.S military presence in Asia that would weaken regional security and ultimately the reputation of the U.S domestically and internationally.
The improbable promises that Trump gives allow us to only speculate how far reaching the consequences of his statements are. It is a trying time for both USA and the rest of the world who are on tenterhooks as to which way the elections would go. Instead of retreating and closing off the economy for short term gains, the USA and the rest of the world should still continue being open to avoid the potentially damaging effects or missed out gains that these countries can benefit from each other.