Photo credit: The New York Times
From wanting to build a wall on the Mexican border to proposing a national register of all Muslims in the United States, Trump is infamous for his outlandish plans to ‘reform’ America. From trade to tax cuts, his plans could instead mean economic disaster.
Trump’s Immigration Plan will cause huge economic losses. Trump’s proposal to deport 11 million undocumented immigrants would cost the federal government between $400 billion to $600 billion immediately. Not only would America’s labour force shrink dramatically, but real GDP would fall by $1.6 trillion US dollars. What Trump fails to realise is that immigrants are a vital part of the American economy. A lower employment pool will give rise to higher wages, and in turn, higher interest rates. John McLaren of the University of Virginia says that, “Industries such as agriculture, that are highly dependent on cheap immigrant labour, will experience an increase in wages that as well as destroying the industry as it is now, could have follow through effects to the whole economy. We’re talking about high interest rates, inflation and labour shortages.”
Tax cuts may also worsen deficit and Federal debt. If the promised tax cuts were put in action there will be new business investments and firms willing to spend money rather than stack it away. The Tax Foundation released data that the plan could lead to a 11% growth in GDP and gather 5.3 million jobs. However, the tax revenues for the government would fall by $10.14 trillion. If there aren’t any spending cuts immediately after, there would be a widening of the budget deficit, with creditors demanding higher interest on United States’ bonds. This will neutralise the economic benefits that were anticipated in the first place. Furthermore, the Congressional Budget Office estimates that the total deficit would be $9.4 trillion between the years 2017 and 2026, which would bring the national debt to a total $30 trillion. Trump has yet to include spending reductions to offset the huge tax cuts he promises – one has to wonder whether his team has thought this through?
Trump’s trade reforms could cause also global recession. Trade with China is responsible for nearly half of America’s trade deficit. Trump has declared that China has broken the rules in every way, from “military, subsidies, manipulation of currency [and ]illegal export[ing], to the rampant theft of intellectual property.” He asserts that China’s alleged cheating on labour and environmental protection has forced American workers unfairly out of business. As per the U.S. International Trade Commission, protection of intellectual property will produce more than 2 million jobs in the U.S. and trillions of wealth could be brought back to the U.S. with the elimination of currency cheating and product dumping. However, the main reason for goods being produced in China is that it benefits the world’s consumers to purchase goods at the cheapest price, which American manufacturing is not doing currently. Economics will tell you that no country can have an advantage in manufacturing everything, and that it is to the benefit of everyone for countries to produce to their advantage. China can produce things cheaply, to the benefit of consumers, while America has moved to a services based economy.
Experts say that Trump’s trade reforms could initiate an international trade war. Goods that are not sold to the U.S. could be sold to other countries at lower prices and in return other countries could respond with their own tariffs – leading to a slowdown in global growth and a recession. Trump’s protectionism measures and plans to renegotiate NAFTA are popular. However, instead of saving America’s manufacturing, he could ruin the world economy.