While my passions are typically more focused on humanitarian and civil rights efforts than it is economics, I am writing today from a business and financial perspective.
I believe strongly that all citizens, not just US citizens, must continue to speak up – and speak out – regarding President Donald Trump’s assertions and policies during his term. To that end I feel that many of his voter base do not, or would not, concern themselves with the impassioned civil rights and liberties movements currently underway. Therefore I will discuss the potential negative implications on the working class from an economic point of view.
Trump’s understanding, or lack thereof, of foreign policy and the current and future geopolitical landscape has largely been pointed out by his detractors. On his first day in office, Trump continued to show his lack of understanding in this manner as he signed deals that back-pedal globalization efforts.
What appears to be in favour of the American working class by pulling out of the Trans-Pacific Partnership (TPP) deal, not to mention his future intentions to renegotiate other trade deals that have long been established with US partners, comes at a price.
At the outset it appears these deals would create more jobs in America as companies would be compelled to return their production and manufacturing processes back to US soil. However, many of these companies have already strongly invested in overseas manufacturing and have created trade deals that allow them to sell products to US citizens at a more affordable rate.
If Trump applies pressure to these companies they will have to invest millions, if not billions, in restructuring their manufacturing efforts to move operations back to The US. This would be a costly endeavour and it is more than certain that they will move to raise consumer prices to recover lost revenues.
Increased costs of consumer goods is also an issue for those companies who do not wish to waste their overseas investments and relocate their manufacturing plants back to the US. If they choose to continue to invest in overseas manufacturing they will be subjected to heavy tariffs from the the US government, which again would mean they would have to raise consumer prices to compensate for lost revenue.
Either way it’s a lose-lose scenario.
Take Apple, for example. Apple has invested heavily in Chinese infrastructure and has helped contribute to their goals of attaining 100% renewable energy by investing in important wind turbines with the Chinese government. In doing so, Apple has been able to secure better deals and partnerships within China, allowing Apple to enter into the Chinese market to regain lost market share on the iPhone. This partnership now accounts for 1/5th of Apple’s total revenue.
If Apple were to be subjected to higher tariffs for continuing their deals and investments in the Chinese market, they would have to increase the cost of their consumer goods in the American market to recover their losses. And despite Apple having a tremendous wealth, they are a publicly traded company who are expected to continue to deliver Year-Over-Year (YOY) increases on shares for investors. This means they will be required to raise prices to continue to deliver on those expected results.
While some could argue that creating more jobs on American soil could stimulate the economy, it must also be noted that Trump’s own choice for labour secretary, Andrew Puzder, is in direct opposition of raising minimum wage in an effort to protect businesses first, which could lead to decreased labour protections for American workers. And if manufacturing were to take place on US soil, the jobs being created would be at the minimum wage in order to keep costs as low as possible.
As is wildly apparent, those living off of minimum wages are faced with financial struggles that have them either living at or just below the poverty line. Stimulating jobs for people on minimum wage would not go a long way towards helping economic growth in the US. Couple that with increased prices on foreign imported goods and services there is a real danger of slowing economic growth and leading to a recession, which could in turn put other US citizens out of jobs.
It’s essentially a catch 22 that President Trump doesn’t seem to understand or consider, which says a lot considering he considers himself to be the best deal closer, period.
His actions on Day 1 have served to undo decades of globalization efforts of successive Presidents who had hoped to create a strong influence on world trade by implementing the United States style of trade abroad to help build upon the US global presence and reap the benefits of cost effective exporting and importing of goods.
By taking the US out of the TPP deal, Trump may in fact serve to benefit the Chinese government in trade. China was not apart of the original TPP deal, however, they were working towards a different trade agreement known as the Regional Comprehensive Economic Partnership (RCEP) with other asian countries on the Asia-Pacific Rim.
Without the United States participation in the TPP, China would effectively circumvent the US in trade negotiations with other countries under the RCEP, which would support globalization efforts while leaving the US out of global interactions. This could, in effect, allow China, not the US, to set the rules of global commerce, diverting trade away from the US.
Basically, if the United States doesn’t want to play ball with the global community, then it will be left out to it’s own detriment, allowing other developed countries to create new trade agreements that would greatly benefit them.
Now, obviously, this is not to say that existing trade agreements in place are not flawed. The US is still one of the largest capitalist nations in the world, second only to Germany, who has long created trade deals to benefit larger businesses over every day US citizens. But it must be pointed out that Donald Trump’s approach is not the swift victory for the American working class that his political rhetoric has set out to suggest.