Economic Policy Adopted by Trump May Lead to Great Changes

• 02.09.2017, 19:55
• Lilia Amirkhanyan
•  America,  "Insight" Analytical Center ,  World

After the election of Donald Trump as the US president, big changes in the world economy are almost inevitable. This is due to not only the fact that Trump is actually not supporting his predecessor Obama's policies, as they represent different political parties, but also to what promises Trump gave during the campaign and what decisions he signed after the election.

From his announcements we can fix the direct threats to those US companies that organize production not only in the territory of the USA, but elsewhere, in particular, in Mexico. This concerns the high tax burden for such firms. This statement has instilled great reactions. For example, American automaker Ford has already renounced its intention to open a factory in Mexico. Naturally, this process will result in the opposite effect. A striking example is the Chinese-Mexican investment agreement, which states the opening of the machine-building plant in Mexico as part of an investment project of $ 200 million.

The cumulative result of this process can be instability of the North American Free Trade Agreement Area (NAFTA, which includes the United States, Mexico and Canada), on the one hand and the Trans-Pacific Partnership (TTP) on the other hand.

Another, no less sensational idea is the thesis, known as the "The United States the first" the implementation of which by Trump also contains high risks of fluctuation. According to this idea, those US firms that undertake an economic activity outside the US, contribute to raising the prosperity of other countries and foreign nations. Trump threatened to set higher tariffs for the import of the US goods that are manufactured in other countries. Trump explains his approach by the fact that these companies need to stay in America and create jobs for their own citizens, and not for others. Of course, the implementation of this idea will lead to a short-term positive effect in terms of decrease of unemployment rate in the country, but in the long term, negative results seem to be more visible. So, first of all, we know that American workforce is not cheap, and for most Americans it is more profitable to buy American products made in another country with an affordable price than the product made in the US with high cost. It thus becomes clear that by reducing the unemployment, the inflation will rise in America. In addition, the international market of American products will lose competitiveness due to higher prices.

Even if the goal of Trump is realized, then what will be the price of this step? For example America may lose direct and indirect leverage on different economies around the world.

Let us add that after his election Donald Trump has already gained the status of "currency wars master." We are talking about the effects of such harsh statements such as "the US dollar stability prevents American competitiveness in the global market", or "artificial depreciation of the euro by Germany prevents an agreement of the mutually beneficial trade zone between the US and the EU" and so on ... It is obvious that financial markets are hypersensitive to such types of applications.

The ultimatum towards US firms, continuing ambiguity of the financial markets, the decision of unique taboos for Mexico, which contribute to the activation of major US competitors in the American continent, makes it clear that the global economy will soon undergo major changes.

Which country or union will have any gains or losses as a result, is not clear yet. It is only Trump's goal that is quite clear – to make "the US a leading economy again." But this raises a logical question: ''Was not the US a leading one?!''