Story Of The Week

TRUMPONOMICS: BOON OR BANE?

Being elected as the 45th president of the United States of America, Donald trump received mix reactions across the globe. The short term economic effect of a Trump presidency is perhaps not of foremost concern to vulnerable racial and religious minorities in America, or to the nervous NATO allies in Eastern Europe. But the economic consequences of Mr. Trump’s presidency could be enormous, and costly and that too for the entire world.

Legal Immigrations

According to the National Foundation for American Policy, more than half of all US technology startups are founded by immigrants. The H-1B visa is the most widely used system for bringing in high-skilled foreign labor into the US.

America’s neighbour to the south has most to lose from the new Republican presidency. According to Trump, manufacturing jobs in the US have migrated across the Rio Grande as a result of the North American Free Trade Agreement signed by Bill Clinton in the early 1990s. Therefore, if he is unable to renegotiate the terms of the NAFTA, he would pull out of the treaty altogether. He has also threatened to put a 35% tariff on some Mexican goods.

India exported about $82 billion-worth of software in the financial year 2015, out of which 60% went to North America. If the companies native to US are made to limit outsourcing then this would adversely affect the bread and butter of the Indian industries. With Trump referring the visa programme as “Unfair”, the companies which are the heavy users of H-1B visas such as TCS, Infosys, HCL will face tough times in the future. The Native US companies will have to look for American talent to fill out the roles which are now occupied by H-1B visa holders. The policy of “America First” and the idea of giving back the jobs to the Americans will isolate the US with the South Asian countries and the countries exporting cheap labor such as India and China will suffer. The wages which will have to be paid to the Americans will be comparatively higher and this can add on to the cost structure of the companies.

Indians comprise 15.9% of the total international students in the US. This number may dip down as students may not be in favor of taking a huge risk by incurring the heavy expense on education in the US. Also they may be unsure on the availability of jobs in US for them.

 TrumpCare

ObamaCare, officially called the Patient Protection and Affordable Care Act, is a health care reform law signed in 2010 by then President Barack Obama. It aimed to increases the quality, accessibility, and affordability of health insurance.

Trump wishes to modify the existing laws and if he repeals ObamaCare entirely then that would leave 20 million Americans without health insurance. The cost of replacing the ObamaCare would cost around $300 billion incorporating economic growth. The deficit for the federal government would inflate up to $33.7 million. Donald Trump policy mainly focuses on a monetary growth at the cost of social welfare of the people.

Tax Cuts

Donald Trump has proposed cutting the seven Income tax brackets down to three: with 12%, 25% and 33% rates. Corporations currently pay tax at a rate of 35%, his proposal would cut the rate down to 15% and will also eliminate the estate taxes.

According to the Tax Policy Center, the totality of the Trump plan will reduce federal tax revenue by $6.2 trillion over the next ten years. Of those tax cuts, nearly 47% will go to the richest and so the rich will get richer. This may bring in more money to the businesses which may lead to its expansion. But at the same time, these tax cuts would result in less revenue for the government. The trillion dollar investment promised by President Trump is mainly through debt. But Economists don’t believe this would work in the long run as Trump’s policies don’t hold the basic foundations of economics. The borrowings would add up to $5.3 trillion to the already existing 20 trillion dollars in debt.

Trade Polices

US is a major trading partner for Asia and any policy of trade protectionism would negatively impact the global economy. The trade conflicts with China and the anti-free trade policy that might set in, will badly impact the whole economy. Imposing heavy tariffs on imports would affect the operations of firms across the globe and once it hits China, then the whole world’s economy would slow down. Trump’s expression of displeasure on the work outsourced to India further narrows down the trade opportunities.

Trump’s pledge to make America “energy independent” will benefit the oil companies as this will allow oil and gas explorations in new areas.

Trump has already promised to increase the military expenditure and this may lead to debt burden and falling dollar. A recession in US is bound to impact the globe.

global-economic-impact-on-trump

                             Global Economic Implications of the Trump  Agenda

The investors will be alienated to put in heavy money on account of predicted uncertainty in the US Economy over the next two years.

A team of Fitch Ratings analysts and directors noted that while Trump’s win would have no effect on the U.S.’s current AAA credit rating, his proposed policies would hurt the country’s rating in the medium-term and this would alienate the investors to put in heavy money.

 Paris Climate Agreement

The promise to withdraw from the Paris Climate Agreement will lead to heavy investments on the carbon rich energy resources which can lead to a climate disaster. About 17% of the carbon emission comes from US and if US backs out then it may happen that a carbon tax will be imposed on all the imported products of US in Europe.

This may serve as a domino effect and multiple countries may withdraw from the agreement.

A Look into the Future

Trump describes himself as an admirer of Mr. Modi. The Indo-US ties may enjoy a sense of friendship between the two leaders. US and Russia have already talked about creating a foundation of bilateral ties through trade and have joined hands in the fight against terrorism. Japan and US may also wish to build a relation with “trust”.

The impact of Trump’s policies may come out as a boon for some of the economies, but for the others it may pose a serious threat.

REFERENCES

http://www.telegraph.co.uk/business/2016/11/09/qa-what-does-donald-trumps-presidential-victory-mean-for-the-eco/

https://www.theguardian.com/business/2016/nov/09/donald-trump-new-us-president-america-global-economy-china-mexico

http://www.economist.com/blogs/freeexchange/2016/11/global-economy

http://www.forbes.com/sites/billconerly/2016/11/11/trump-congress-executive-authority-and-the-economic-forecast/#ebcfa46bde8a

http://www.cnbc.com/2016/11/09/donald-trumps-impact-on-the-economy.html

http://thewire.in/27048/a-trump-presidency-will-be-a-blow-to-india-on-many-counts/

 

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