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Trump’s economic recipes: Tax cuts and tariffs

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  • Wed, 11/07/2018 - 14:20
Donald Trump
  • EFE

By Alfonso Fernández

The tax cuts and trade tariffs have been the basis of the controversial agenda of President Donald Trump in full economic boom in the US and in two years of his electoral victory.

"It's a law to create jobs (...). Companies will literally go crazy," said Trump, sealing the tax reform in the White House in December 2017, accompanied by his Cabinet.

The rule involves the reduction of the tax paid by companies from 35% to 21%, and to a lesser extent for workers.

The president believes that this huge tax cut is largely responsible for the acceleration of the economy in the US, along with its deregulation agenda, and that the unemployment rate is at 3.7%, a figure never seen for almost half a century.

Trump promised to raise economic growth to close to 4% per year once he arrives at the White House, and although that figure has not been reached, the truth is that the world's leading economy is expected to maintain a sustained growth of around 3% in the next two years.

The president failed to mention that this massive fiscal stimulus means adding $ 1.5 trillion to public debt in the next ten years, which currently exceeds $ 20 trillion, according to the Budget Office of Congress (CBO) ).

The other major economic axis of Trump is his aggressive trade protectionism, which has led him to apply tariffs to important partners such as China, the European Union (EU), Canada or Mexico, with the purpose of resuscitating the, in his opinion , "dying" American manufacturing sector.

With Canada and Mexico, the president scored a victory by reforming, after months of negotiations and criticism, the North American Free Trade Agreement (NAFTA) in force since 1994, which includes strengthening the requirements of domestic production.

The tension continues, however, with Beijing, which is a cause for global concern.

At the end of September, the USA imposed tariffs of 10% worth 200,000 million dollars to a series of Chinese products, in the framework of the trade war with the Asian giant.

"If China retaliates against our farmers or other industries, we will immediately start the third phase, which involves tariffs of approximately $ 267 billion in additional imports," Trump said at the time.

The two largest economies in the world have been immersed for months in a trade war over the tariffs that Washington is imposing on Chinese imports, and the consequent retaliations in Beijing.

Trump believes that the trade deficit of his country in its exchange with China, which is estimated at 376,000 million dollars per year, is unacceptable and has to be balanced.

"Hopefully, this business problem will be resolved, ultimately, by me and Chinese president, Xi Jinping, to whom I have great respect and affection," Trump said in September.

Both leaders are expected to hold a bilateral meeting in the framework of the G20 summit, which will take place in Argentina on November 30 and December 1.

In the context of these trade wars, the Trump government was forced to launch a plan worth $ 12 billion in July to compensate farmers affected by the retaliatory tariffs with which other countries responded.

In the medium and long term, analysts consider that the agenda of economic nationalism implies "shooting oneself in the foot", in the words of Larry Summers, former secretary of the Treasure, in a recent article.

"This is really dumb protectionism," Summers said, saying it would eventually damage the competitiveness of the US economy in the long term.

Source- EFE

 

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