Although the first thrill has passed, the path the newly elected U.S. president, Donald Trump, will follow in economy and foreign policy is still an object of interest in international spheres. The populist discourse that Trump has put forward during the election campaign, including him talking about terminating international economic agreements to which the U.S. is a party to get the economy back on its feet, and him keenly indicating protectionism, can put the U.S. economy under a serious "stagflation" risk in 2019 with increasing inflation and unemployment and, at the same time, in a heavy recession whirlpool, even if it brings growth to the economy in 2017 and 2018. It would thus be fitting to explain the reasoning behind this risk that will be awaiting the U.S. economy over the next two years.
Firstly, Trump's proposed solutions based on populism carry great risk in terms of increased production costs in the American economy. The additional 45 percent tax on Chinese goods and 35 percent on Mexican goods can be wrongly analyzed if only evaluated in terms of final goods. On a global scale, the world economy, especially American companies, run on supply chain management. The measures based on populism and protectionism that Trump is thinking of adopting for the U.S. manufacturing industry will impair the supply chain management of American companies and jump the production costs by decreasing the efficiency of the U.S. economy. Thus, the protectionist actions of Trump will come back as serious inflation risks for the US.
The second topic is the matter of illegal immigrants who will be deported. Deporting 11 million people implies that the productivity and cost of labor will be negatively affected as 5 percent of U.S. employees will be excluded from the work force. The issue I explained above and this one both indicate a severe cost inflation pressure on the production of goods and services in the American economy. Adding Trump's intended public infrastructure investment movement and tax reduction plan to this will bring a $7-trillion extra burden to the U.S. public budget over 10 years, which is half of the U.S.'s public debt. This, in turn, means that the U.S. Treasury will be $7 trillion more in debt, and the cost of debt and the interest rates of U.S. treasury bonds will significantly increase. The inflation and a rise in the interest rates of U.S. bonds will push the Federal Reserve to impose a harsher increase in interest rates. This whole picture will drag the U.S. economy toward a "stagflation" risk by 2019.
Trade agreements at risk
Another issue the country is at risk of with Trump taking office is the international trade agreements the U.S. is a party to. Trump asserts that he will terminate these deals, believing they hurt the U.S. economy. A study by the London-based Centre for Economic Policy Research shows that the Transatlantic Trade and Investment Partnership (TTIP), between the U.S. and the European Union will contribute between $70 billion to $130 billion to Europe's GDP and between $50 billion to $100 billion to the U.S.'s GDP by 2027. Trump's decision to freeze the agreement may give hope to the countries opting out of the agreement, thus believing they would be negatively affected, however, it would bring loss of additional trade revenue to the EU.
The Trans-Pacific Partnership (TPP) agreement that will shape 40 percent of the world's trade is also at risk. The TPP, led by U.S. President Barack Obama last February and excluding China, has brought the U.S. the power to lead the trade in the Asia-Pacific region. However, severe criticism came up in relation to the deal pushing small enterprises and farmers out of the economy. Trump explicitly and clearly defined the TPP as a disaster and stated that they will withdraw from the agreement if he is elected as president.
China at counterattack
With the possibility of Trump also calling off this agreement, China's visits to the countries party to the deal has intensified. China's President Xi Jinping will seek support for his country's initiative at the Asia-Pacific Economic Cooperation Summit in Peru on Nov. 19-20. China's Deputy Minister of Foreign Affairs Li Baodong has explained President Jinping's efforts by pointing to the necessity of a new and very practical course of action to meet the expectations of the industry sector, to sustain the acceleration China has taken up, and to create a free trade area within the Asia-Pacific region.
Economists remind people that China wants to set up entities, such as the Free Trade Area of the Asia-Pacific (FTAAP) and the Regional Comprehensive Economic Partnership (RCEP) as an alternative to the TPP. Jinping will visit Chile, a party to the TPP, the agreement whose faith is hanging by a thread, after Peru. Attention is drawn to the fact that the U.S.'s average customs duties will reach its highest level for the first time since World War II by rising from 1.5 percent to 13 percent with Trump's protectionist shield increasing the import duty on goods imported from Mexico and China to 35 percent and 45 percent, respectively.
to read our informative text prepared pursuant to the Law on the Protection of Personal Data No. 6698 and to get information about the
used on our website in accordance with the relevant legislation.
6698 sayılı Kişisel Verilerin Korunması Kanunu uyarınca hazırlanmış aydınlatma metnimizi okumak ve sitemizde ilgili mevzuata uygun olarak kullanılan
ilgili bilgi almak için lütfen