Apart from the constant denigration and the news (more or less fake) that accompanied every decision, serious and impartial analyzes of the economic policy pursued overall so far by the current US presidential administration are rare to find.
Despite the “information resistance” of a good chunk of MainStream Media (MSM), Trump’s economic thinking has so far remained consistent. Trump has always (therefore, even before becoming President of the United States) adhering to the school of economic nationalism. As early as the 1980s, he expressed his personal concern about the negative impact that globalization would have on American industries. In 1988, on the occasion of his participation in the Oprah Winfrey Show, Trump openly criticized the notion of economic globalism as an engine of growth in cases where the trade relationship was asymmetrical (such as between China and the United States). What today, thirty years later, it is continuing to do.
Those who voted for him two years ago, therefore, knew his ideological position well and probably did it for this reason. If he fails to keep his promises, his electoral approval will surely suffer. Therefore, “America First” must be considered an indispensable component for his stay in the White House in 2020.
A basic Trumponomics course can only be outlined starting from his direct statements (interviews, tweets and official platform signed by him). It is inadvisable, on the other hand, to give importance to statements made, even if they come from members or departments of your Administration. The significance of Trumponomics emanates from Trump and no one else. Everything else can be overturned by him or denied in fact. The use of Twitter is for this: to leave a personal imprint. This aspect, known to those who work in Washington, is one of the main weapons of the MSM to spread abroad (especially in Europe) the feeling of ambiguity in US presidential policies.
Trump’s economic policy is a combination of three tools: ECONOMIC NATIONALISM
Trump cannot be called a protectionist, at best (but with several caveats) a mercantilist. Unlike protectionism which seeks to isolate internal markets from international competition, the mercantilist pursues the growth of his own internal economy by actively investing in it. While the protectionist is satisfied with his share of the market, which he does not want to share, the mercantilist not only wants to keep his share of the market, but also wants to increase it at the expense of foreign competitors.
To do this, whenever necessary, Trump attacks American companies that do offshoring, that is, they relocate their labor-intensive activities to cheaper places abroad (favoring the creation of jobs in those countries), then selling those produced in the United States and keeping the capital-intensive portions of the business in the United States. To take an example often used by Trump, if Apple delocalizes the assembly phase of the iPhones overseas, but keeps the designers in the United States, this means that, within the United States, it replaces 10 workers with just one new designer, and nine Americans become unemployed.
Trump’s tweets are the most effective tool of this policy. Many tweets have already produced results with large multinationals such as Ford, IBM and General Motors, “inducing” them to bring projects for over a million potential full-time jobs back to the United States. Economists call it the “Trump Effect” in which Twitter represents a huge leverage used in terms of “carrot and stick”: praise for those who invest in America, and threats for those who don’t.Carrot exampleStick example
Liberals call it blackmail, while for someone else it is an example of how much power consumes those who don’t have it. Trump’s action basically creates competition: companies that decide to invest in the United States get the best publicity, high leniency expectations, and presumably profits; those who refuse, a likely ostracism on the part of the reinvigorated consumer, who is now moving towards a total aversion to imported goods considered more expensive and above all “un-American”.
An example is the negotiation with Lockheed Martin to reduce the cost of the F-35 by 379 billion dollars. Faced with initial resistance from the company, Trump, via Twitter, called on rival Boeing to provide a cheaper alternative.
Immediately the Lockheed stock price plummeted by 2%.
In January 2017, following a meeting between CEO Marillyn Hewson and Trump, Lockheed Martin announced the finalization of a contract that significantly reduced the cost of its F-35s. In the company’s statement the importance of the President’s speech was emphasized with emphasis.INVESTMENT IN INFRASTRUCTURE
Trumponomics aims at the prosperity of the nation, the improvement of productive efficiency, and the increase of individual productivity. One of the simplest ways to improve productivity and make infrastructure more efficient. For this reason, the investment plan provides for an investment of 1.5 trillion dollars which should create an average of 290-414 thousand new jobs in the infrastructure sector over a period of ten years. Among the main beneficiaries of the program, workers with a lower level of education. In 2016, 62% of workers in the infrastructure sector had a high school education (or less) compared to 32% of the workforce in the non-infrastructure sector.
If every company and every individual benefits from efficient airports, adequate bridges and roads, transport costs and product waiting times are reduced. Furthermore, there is also an economic security problem. In 2013, the American Society of Civil Engineers gave the existing infrastructure in the United States a D + rating, deeming it necessary to spend at least 3.6 billion dollars just for the maintenance of the existing one in terms of roads, bridges, dams. A trillion dollars, then, may not be enough, but it’s a good start. REDUCTION IN TAXATION AND DEREGULATION
Lower taxation and fewer regulations are expected for both large companies and individuals. Lower rates, combined with incentives to bring back the treasuries of multinationals and the assets of the so-called HNWI (High Net Worth Individuals) currently held in offshore accounts (estimated at a minimum threshold of about 2 , 5 trillion dollars), are the factors that, in Trump’s view, should return the necessary shock to the US economy. Currently offshoring is justified by the fact that many US companies face some of the highest internal taxation levels in the world. Escape is a natural response, therefore. Furthermore, America is plagued by excessive and often incomprehensible regulation. The recent Omnibus Law, for example,
These three tools are used to address the three main evils of the US economy (the data are elaborations from figures collected at the Bureau of Economic Analysis of the Department of Commerce):
- economic stagnation US GDP has slowed significantly since the 1970s, from 4% per annum to around 2%. Looking at GDP per capita, the situation worsens. Domestic economic growth, in fact, has essentially ceased: the average has been 0.147% per year since 2012. During the Great Depression, the average was 0.34%, twice as high. None of Clinton, Bush and Obama have done anything to boost per capita wealth.
- Wage Depression Most Americans have not received a real wage increase for at least 40 years. Real earnings peaked in 1973, and have started their descent ever since. Relative prosperity and the problem to be solved: if incomes had kept the same pace of growth, a normal American family today would earn about $ 16,500 more every year.
- endemic unemployment (Only 148 million Americans (out of 320 million) work – many of them part-time, or simply in jobs far below their educational level. Unemployment is mostly involuntary as being able to work is very important in the states. United. Officially, the unemployment rate is 5.5%, which would mean an absolute value of 8.3 million Americans unemployed. But this is fantasy. Many sites (including ShadowStats.com) measure the real rate of unemployment at least 13.3 percent, equivalent to nearly 23 million unemployed Americans, and the labor force participation rate is only 62.7 percent – the worst since 1977.
One of the main criticisms rejected by Trumponomics’ perspective is being a zero-sum model. Indeed, liberal economic thought often proposes the idea that in a bilateral relationship when one country gains economically, the other loses. The sum is therefore zero.
Trump’s perspective is different as he always maintains a mixture of economic and political components. Even from a globalist point of view, in any political confrontation, the most politically powerful takes away space from the less powerful. Mercantilists are opposed to asymmetric trade relations on an economic basis, as it narrows the relative power differential between the two states. If America trades with China and, because of this trade, the American economy grows 1% per year, while China grows 4%, liberal economists are satisfied that both countries benefit economically from the trade. For mercantilists, and for Trump, this is a “bad trade” because it weakens America relatively compared to China in the medium term. It seems like the discovery of hot water,
In Trump’s view, long-term economic growth is not caused by trade, immigration, or population growth (components of systemic stability, but not growth), but by Talib-like “black swan” events that can improve technology by moving the frontier of production possibilities. This is why one of the cornerstones of Trump’s policy is the protection of Intellectual Property to guarantee the US economy a relative technological advantage through tariffs on value-added imports and incentives on imports of raw materials and complementary technological products; containment of taxation on value-added exports by discouraging exports of raw materials (for example, by de-taxing car exports, and taxing grain exports); search for new markets to export technologically advanced products in exchange for raw materials (for example trade agreements to sell armaments in exchange for uranium, and not vice versa).
It may come as a surprise to know that for much of its history, the United States of America has espoused economic nationalism, particularly during the 19th century. Seven presidents have based their program on this economic thinking: Washington, Jefferson, Lincoln, Grant, Monroe, McKinley, and Teddy Roosevelt. Donald Trump’s economic nationalism is nothing more than a continuation of these historical periods that many (not just Republicans) consider to have been the periods of apical growth and prosperity for America. FABIO VANORIO
Fabio Vanorio is an executive of the Ministry of Foreign Affairs and International Cooperation, where he has served since 1990. Since 2000 he has served at the Presidency of the Council of Ministers. On leave since 2014, he resides in New York where he has ongoing academic research projects in international economics and national security economics. He graduated in Economics in Rome from La Sapienza University, where he also obtained a specialization in Economics and Law of the European Communities. He has two Masters in Applied Econometrics and Islamic Finance and Insurance respectively, the latter from London. He currently writes for the Hungarian Defense Review and for the Nicolo Machiavelli Institute of Strategic Studies.
DISCLAIMER: All the opinions expressed are attributable to the author and do not reflect any official position attributable to the Italian Government, nor to the Ministry of Foreign Affairs and International Cooperation. Where the topic is inherent to international relations, the text has been authorized for publication by the Ministry of Foreign Affairs and International Cooperation.