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Trump’s definitive plans will surely face headwinds!

Weak US Dollar

Structural Reforms:

The House Speaker, Paul Ryan’s, methodology of “border adjustments,” is being termed as complicated by Trump.  Amongst his other concern is the notion that the newly elected administration is “going to get adjusted into a bad deal.”  While understood, that Ryan’s approach is merely simplistic, as it calls for “tighter financial conditions through a stronger dollar,” but this particular aspect throws light on where the actual divide between the two resides.  Ryan’s plan rests on a strong dollar to offset import cost and if extra tariffs were levied, invariably, would be borne by consumers resulting and directly affect the consumption function.  Trump wants to promote manufacturing and this broad sector having an export component would function better in a weaker currency environment.  The implications could be disastrous for a country, which has not been export-led for generations.  For example, in 2015 US services industries accounted for 78% of the US Private sector GDP and 82% of US private sector full time employment and it is troubling for many that Trump led administration would act to derail a path that has been the mainstay of the US economy and deterring domestic consumption.  Much of this, once again, could be a politically steered move, as Trump’s support has primarily come from blue-collared communities, as he would want his constituency to perceive him truthful to his word.  This may make appeasing this societal class politically correct, but purely on economic terms, it does put the economy on a bearing that could actually lend it becoming rudderless.

 

Political Considerations:

The new administration, by signing out of Trans-Pacific Partnership, has also laid the precedent to toughen negotiation talks on trade henceforth.  While signing out of the TPP, initiated by Barak Obama, was part of the broader strategy to increase US political clout in Asia, and also keeping a check on China’s economic and military ambitions, is being viewed rather ruefully.  Chinese media has been disdainful and has termed Western democracy as having “reached its limits,” at a time Xi Jinping has openly touted Beijing’s commitment to globalization.  Earlier Pena Nieto, President of Mexico also showed his stance of moving away from its reliance on US trade while diversifying its commerce avenues with other countries.  Further, an ouster from the TPP does open up opportunities for China, which has been pursuing regional trade agreements with 15 other Asian countries.  White house economists have stated that a deal between China and Japan could jeopardize as much as $5 billion exports, which would result in a loss of American jobs. Thus, an introspective approach is potentially opening up doors for others to fill in the gap and dictate terms of international trade, which yet again means a shift for the global economy.  When AFL-CIO President Richard Trumka states, that these policy moves are just “first in a series of necessary policy changes required to build a fair and just global economy,” it does send reverberations in the global economy.  Nevertheless, one thing to Trump credit is, that while he stirs a lot of controversy and executes his plans in a definitive manner, he is not necessarily erring into hasty decisions.  For example, he has deployed US top executives to come up with a border tax strategy in the near future, and thus seems to be taking requisite logical steps in seeking viable solutions.  Dow Chief CEO stated, “He’s not going to do anything to harm competitiveness.  He’s actually going to make us all more competitive. “

 

Only time can tell, if steering of the economy in a new direction by Donald trump is a correct choice. A shift in confidence can cause the US economy to veer of a steady path which has been the economies mainstay as of late!

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