Decoding the Policy to date of US President Donald John Trump-Part IV

Will bring the expected results to the US economy the policies to date of US President applied in the political and economical sphere? These questions will be answered in this and last part of our analysis.

Why the current US President Donald John Trump’s “Make America Great Again” election slogan found preaching ears among US citizens and was voted as the best candidate to re-incorporate a large percentage of frustrated US citizens in the US society?

by Thanos S. Chonthrogiannis-https://liberalglobe.com

The ingenious election campaign and slogans of current US President Donald John Trump before the 2016 elections

Since the 2008-year the global financial crisis erupted with the collapse of the investment bank Lehman Brothers Holdings Inc., both the global economy and the economies of individual states (US, Eurozone/EU, UK, Japan, etc.) have not recovered, despite the concerted efforts of their central banks to reduce the overall impact of this crisis.

In combination with other geopolitical and economic events respectively such as the Brexit and the decline in global aggregate demand due to the decline in aggregate domestic demand in China, create an increase in uncertainty for both citizens and businesses globally.  

In today’s societies of the liberal world, a political party and by extension a political leader to win the national elections in his country will have to convincingly convey a vision that through it the citizens should believe that they will they are also involved in this vision that the political leader has and will not be forgotten in the margins of society.

Citizens in liberal societies and not only, and always in times of financial crises or economic depressions, where the cost of living is increasing, as the uncertainty for the future increases together, they know very well that in order to escape from these problems of everyday life and their anxieties for the future should be able to find well-paid jobs over a long horizon.

Well-paid (full-time) jobs that will finance and solve both the problems of their everyday life due to, for example, increased cost of living, while eliminating any uncertainty they have for their future.

Essentially, what citizens are looking for and especially citizens who do not have formal qualifications (un-skilled workers) is the possibility of finding well-paid jobs and regardless of the nature of the job.

So, the political leader who will be able to persuade his constituents that he and the implementation of his political program will create in society the necessary conditions for the availability of well-paid full-time jobs and in particular jobs for citizens with the lowest incomes in society that usually have the least formal qualifications (un-skilled), is also the one that will take the citizens with him and his political vision and the citizens will vote as much him as his political party.

The brilliant election slogan “Make America Great Again” by current US President Donald John Trump, just shows this logic-strategy. That jobs will be created for everyone and especially for all those citizens who do not have the formal qualifications (un-skilled workers).

This is the main reason why a large part of the American (US) electorate, which in previous and generally all previous elections did not use to participate as voters (abstention) was coordinated and persuaded by this slogan and voted for the current President of the United States.

In combination, the fact that the current US President was not a political “career” in the sense of belonging to what we call a political system and at the same time the two major political parties in the United States (Republicans and Democrats) presented the characteristics of political parties of the liberal world described in the previous Parts I, II, III respectively of our analysis, which political parties a large part of American society regarded as alienated from them and their problems, constitute the basic explanation of current US President Donald John Trump’s election victory.

The so-far formed internal political scene of the USA

Unfortunately, the US domestic political scene is characterized by the rivalry between the Democrats of Congress and President Trump. A rivalry that began on the date of the election of President Trump’s and continues continuously within a muffled manner and sometimes with outbreaks of wild conflict.

The Democrats’ accusations of President Trump on the investigation of special prosecutor Robert Mahler are infuriating President Trump, pouring oil on the fire. On the other hand, the recent statements by President Trump on Nanci Pelosi, President of the House of Representatives, during President Trump’s announcements of a package of aid for farmers affected by the trade war with China, indicate that the rivalry continues incessant.

US President Donald Trump delivers his State of the Union address at the US Capitol. D.C. Vice President Mike Pence and Speaker of the House Nanci Pelosi
Photo: Official White House by Shealah Craighead, licensed public domain

Certainly, in the political game (but in this case a fierce political game) are these political tactics, in the attempt to “reduce the size” of the political opponents. But the bottom line is that citizens need to find solutions to their problems. And these solutions only come when you know either as a politician or political party what these citizens’ problems are.

The knowledge of these problems comes through procedures that were described in detail in the third part of our analysis “Decoding the Policy to date of US President Donald John Trump-Part III” published on 23/05/2019 στο liberalglobe.com.

Politicians and, more generally, political parties that will approach citizens by house, village, city, region, county and state, and recording in detail their problems, will have the opportunity to devise convincing political programs which, by presenting them will be able to persuade the citizens to vote for these politicians in the upcoming elections.

The implementing economic policies of the slogan “Make America Great Again” that intend to create the much-needed well-paid jobs in the US society are those that will give the expected results?

The financial staff of current US President Donald John Trump with his investiture was confronted with:

a) A large-scale deficit in the US trade balance.

b) A high deficit in the state budget of the US federal government respectively.

c)  A growing debt of the US federal government. The US federal government’s debt is continually increasing to finance, in addition to all others, the U.S. trade deficit.

At the same time, global competition has significantly reduced the profit margins of American producers and of course their profits. The FED due to its co-ordination with the other main central banks of the world to address the global financial crisis of 2008 and for more than a decade, it had not and still does not have much room for reaction to reduce the cost of borrowing in US dollars.

Within this global market for goods and services the policies that have been qualified by the U.S. federal government’s economic staff and always according to the data that have been seen in the spotlight have been summarized as follows:

1. Major US products purchase contracts worth billions of US dollars (mainly defense material and not only) that were “imposed” on countries of the western world such as Saudi Arabia, EU, Japan, Canada etc. with aim to support the US economy.

In this way, a reduction in the size of the US trade deficit will be expected to take place in the future due to the capital inflows from these agreements.

But this type of policy will help to reduce the US trade deficit and secure jobs in the US internal market but may increase the coldness between Western allies and the liberal world in general, creating rifts in their relationships. In addition, there are other critical factors that should be considered in order not to invalidate the results of these policies.

This policy resembles the policies implemented by the economic staff of 40th US President Ronald Wilson Reagan (1981-1989) where with the Plaza Agreement (1985) the US “forced” the then financial superpowers Britain, West Germany, France, Japan to accept devaluation of $ versus ¥ and Dm to drastically reduce the US trade deficit and revitalize the manufacturing industry in the US. But then the common goal was the victory over the USSR.

2. Simultaneous imposition of tariffs on products and services from China, the EU, Japan, Canada, Mexico etc. in order to make US products more competitive (lower prices) in the US internal market and to strengthen the exports of American products.

In the short term alone, these tariffs will restore the competitiveness of American products and if they do not impose equivalent tariffs on US products abroad from the affected countries and there is no revaluation of the dollar.

This economic policy resembles one of the economic policies from the economic package implemented during the term of 37th President of the United States Richard Milhous Nixon (1969-1974).

Imposing tariffs on a global market will cause a world trade war with unpredictable consequences for the global economy and peace respectively. At the same time, it will cool the relations between the Allies of the Western world and not only.

Furthermore, if the respective tariffs are imposed by the other countries affected in the US products and services in their own markets and since US companies abroad will be consistently and silently excluded from major projects in these countries, the timeless implementation of this type of policy will turn the US capital, which is accustomed to moving globally without obstacles to finding its best possible profitability, against the policy of the current US government.

The “silent” restriction-exclusion of US capital in the markets of the affected countries as “retaliation” of the imposed duties on foreign products imposed by the US, will look like someone trying to close a bull in a canary cage.

In this case, most of the US capital will seek ways, through political support in other political areas, to in any way abolish the policy of imposing tariffs on foreign products and services in the US market, in order to fully liberalize its movements in the other markets of the planet.

The consequences of these choices of US capital will be shown in the next US elections.

For more information on the consequences of a world trade war the reader should read the analysis titled «The Geopolitical Consequences from the World Trade War» published in https://liberalglobe.com, on 01/10/2018, category: geopolitics. 

3. The gradual appreciation of $ US in relation to the remaining major currencies, and the Chinese Yuan reduces the demand for US products on the world markets. This result will be seen in the expansion of the US trade deficit by reducing US exports.

At the same time, this macro-economic factor cancels any price increase due to the imposition of tariffs on foreign products sold in the US markets. The consumers in the USA would probably, in this case, prefer foreign imported products from US domestic products.

Moreover, the increase of $ US, causes an increase in public debt and its cost service to all those countries that have borrowed in US dollars. This single event makes it more difficult to repay debts in US dollar countries like Brazil, Turkey, China, India, Russia, etc.

In this case, domestic demand in these countries is affected, causing an even greater reduction in global aggregate demand. The impact of this macroeconomic policy will be seen sooner or later in the US trade deficit.

4. Adoption of package of huge tax exemptions for citizens and businesses with the obvious aim of stimulating domestic demand and consumption in the US domestic market.

These measures are dubious and short-term effective measures, since any tax exemptions are usually directed towards repaying past debts and less to stimulate consumption. At the same time, the imposition of tariffs on imported products may limit the consumer choices of US citizens and always for given levels of disposable income.

This type of fiscal measures when implemented should always be accompanied by the implementation of an equivalent fiscal value measures (corresponding and equal value reduction of state expenditures in the federal state budget) in order not to widen the deficit in the federal state budget.

These tax exemptions should reinforce the disposable income of citizens and businesses on a specific and predetermined time horizon in which the measure should be implemented and not postdated. In this case, the postdated of receiving these tax exemptions from the beneficiaries, the results-benefits of this policy are void.

5. An attempt to reconstruct large projects (e.g. a wall along the borders with Mexico to reduce local unemployment in these regions and to combat illegal immigrations. But this policy is incomplete in terms of immigration policy.

More specifically, if the wall that is to be rebuilt along the borders with Mexico is seen from the perspective of a large infrastructure project, this will help local economies from where it will go by providing well-paid jobs and reducing unemployment in the population, in particular of citizens with minimum qualifications (un-skilled workers) and for the years the wall will be built.

But if this work-project is seen as a measure to combat illegal immigration it is not enough, and this migration policy is incomplete. In this case, the Democrats are right to think that this measure alone cannot combat illegal immigration, while restricting the freedom of movement of people, something that opposes the US Constitution.

I personally believe that every man has the right to seek in another country a better future for himself and his family and no one has the right to oppose it.

In this case, in order to have an integrated policy to curb illegal land migration in the United States, it is necessary to apply primarily another social policy to all Central American countries and in Mexico in order to keep the bulk of their migratory populations in their countries.

This policy is inexpensive in terms of the USA, and relatively small costs for the countries of Central America and Mexico and will have significant benefits in the economies and societies of the Central American countries.

No man on the planet chooses to leave his country when he can find a job and to live decently in his family in the country where he was born and lives. It should not be overlooked that many countries favor migration part of their populations because as societies they do not have the resources to feed this part of their population.

At the same time, they try to avoid marginalizing this proportion of their poor population in their society, because sooner or later it will become a social bomb that will lead either to a popular uprising and a stir against any government or a large part of this poor population will be forced to resort to illegal activities to survive, increasing crime in the country.

In this way, many countries have been seeking and favoring the migration of part of their population to the sturdy economic and social countries (US, EU, etc.).

It is therefore necessary, first, to implement this social policy in the countries of Central America and Mexico and, at the same time or after its implementation, to implement the policy of lifting the wall along the borders with Mexico.

In this case, the US will only have to use the appropriate organizations (i.e. non-governmental organizations) and, in cooperation with the Governments of the Central American countries, to properly implement this policy.

The reader who wants to learn about which is this social policy that will must be applied to the countries of Central America and Mexico and more generally about what will be an integrated and comprehensive policy to solve the problem of Illegal immigration in the US, he will must read our analysis titled «The Solutions to the Migration Problem for USA» published in https://liberalglobe.com on 25/10/2018, category: social.

6. The economic results of the US economy first quarter (Q1) of 2019 are extremely impressive.

More specifically, the growth of the US economy reached 3.2%, unemployment levels are very low, the S&P 500 index is at historically high and the value of the dollar impresses.

In our opinion all these financial results are not based on robust foundations that will follow up these truly flourishing economic results. The magnitude of this growth was based on an increase in government expenditure and on the impact of world trade war unleashed by the US.

As the negotiations between the US and China continue regarding the duties imposed, imports are declining in the USA and exports in this case give another positive picture to their trade balance. In the event of the abolition of commercial warfare this tendency can easily be reversed in favour of imports (increase in trade deficit).

At the same time, because the companies do not know the brunt of the commercial war, they are starting to build stocks to prevent any increase in the amount of duty imposed.

In order to have a clear picture of the development of the economy, an analysis should be made to shows how much of the growth rate (GDP growth) is due to exports and how much to the accumulated stocks and how much of other factors. Depending on the participation of exports and stocks at the rate of growth, we have a clear picture of the real pace and image of the growth of the economy.

In other words, if the contribution of these two economic sectors (exports, stocks) is high because of the commercial war, then we have artificial growth in the economy that at the end of the commercial war will be seen the real picture of the very lower level of growth.

On the other hand, since the economic results relating to the development of the US economy continue to be satisfactory and such as those above Q1 2019, and since these results are based on the consequences of trade war, then the trade war will continue to exist and become more effective at least until the US elections in November 2020.

Having incumbent US President Donald John Trump in his political and economic quiver the performance-development of the U.S. economy and the reduction of unemployment as well as the strengthening of the dollar, mainly due to the commercial war conducted primarily with China, these will also be the main arguments he will use in his political showdown in the upcoming elections.

The figures on the level of unemployment are extremely positive. In an individual analysis, we should see what proportion of these new jobs created in the economy is full-time and what part-time work. If most of these jobs are part- time, then the results are not so much encouraging.

But it is much better for someone to be able to find work even if they are part-time, rather than unemployed. In this context these results in terms of unemployment are excellent.

As for increasing the index S&P 500 and generally increasing the indices in NYSE, it is likely to be based on the increase in demand for shares of a particular “league” of big companies and not for all the companies belonging to this index.

The political part of these economic results of the US economy presented in the first quarter of 2019 is that the current US President would like to continue these positive results until the US presidential elections in 2020, which is very natural for any politician who would be in his place.

In this context, any pressures exerted by the US president on the US Central Bank (FED) to further reduce interest rates and reinstate the implementation of the QE through which the FED is channeling money through bond market by purchasing continuously US Federal Government bonds with aim to create an artificial growth in the economy.

China is used as an example, which has implemented measures to boost its economy (i.e. tax exemptions etc.) maintaining low levels of interest rates.

I believe that the application of such a type of proposed policy is wrong for two main reasons:

Α) Because an artificial-false growth will later lead to a very painful recession.

More specifically, when the amount of circulating money (money supply) increases for whatever reason people feel better and increase their demand and consumption, but these extra consumer spending will increase in a short period of time the prices.

On the other hand, companies watching the increase in consumption and demand are increasing their production costs (new investments) for their products and services. At the same time due to low borrowing rates loans are made cheaper and the money provided in the economy increase. In this way businesses increase their borrowing to invest more and produce more.

But in a short time, this consumer frenzy stops due to rising prices. Because of low interest rates, citizens do not save enough so these savings to be used to fund new companies’ investments.

Companies are trapped between declining demand and increasing borrowing costs. Capital investments are lost, and real resources are also lost. And then begins the painful recession that will lead the most vulnerable companies to bankruptcy and to rising unemployment.

I believe the FED will not fall into this trap.

Β) Because the principles of liberal governance are being violated.

As soon as the President of the United States puts pressure on the FED to implement a policy other than that which must be based on the existing fiscal and economic conditions, then both the independence of the FED Is lost as the principles of liberal governance and we have the implementation of an authoritarian rule unknown to date in the liberal world.

The conclusions

Most of these policies may give a short-term breath to the US economy but will not solve the problem in the long run.

A problem that is based except to any unlawful practices in China’s economy (illegal subsidies to Chinese companies, increased barriers affecting international competition, etc.) that aggravates the US trade deficit with China, but also in not improving the competitiveness of US products and services in relation to other competitive products and services worldwide.

At the same time these policies create problems in the international order by influencing relations between the Western world’s allies.

In another analysis we will mention more about these issues of competitiveness and implemented policies to improve trade deficits and reduce the public debts of the governments of the countries in the liberal world and not only.

Thanos S. Chonthrogiannis

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