Most economists of the world do not agree with the decisions of the newly elected President and they feel that Donald Trump is talking about ‘America First’, but his decisions will not only have an adverse effect on the American economy and the American environment, but America will be isolated from the rest of the world, apart from making life difficult for US people. — Dr. Ashwani Mahajan

The newly elected President of America, Donald Trump, who is known for his unpredictability, from his past tenure, is again making headlines by his statements, after winning Presidential contest, and more so after assuming power.

Tariff War

Donald Trump says that other countries of the world impose high tariffs on American products, so he will also impose raise tariffs on imports coming to USA, to stop the goods coming from outside and encourage production in the country. Since his first tenure as president, he has consistently been saying that he wants to restart the rusting factories of USA. He says that the import duties of India, China, Brazil and many other countries are very high, so he will also impose heavy tariffs on imports from these countries. He feels that due to low import duties in USA, American industries suffer huge losses, as the country's production is shifted overseas. Therefore, Donald Trump also says that on one hand the employment of US people is destroyed, and on the other country loses on revenue; and to compensate the loss of income from import duties, he has to impose more taxes on US people. In the first instance he has raised tariffs on imports coming from Canada, Mexico and China, and these countries have started retaliating.

Donald Trump further says that he will abolish income tax and compensate the same, with import duties. It is worth noting that in his previous tenure too, Donald Trump had reduced taxes on rich Americans. But at that time, even though US had symbolically increased tariffs, and taken many actions, such as excluding many Indian products from the General System of Preferences (GSP; but import duties were not increased on most of the imports coming to US. But this time Donald Trump's repeated emphasis on increasing import duties and announcements of abolishing income tax seems unusual. Not only this, Donald Trump is also talking about reversing the decision of former President Joe Biden, according to which income tax was increased on ultra rich people.

Donald Trump says that he will tax other countries and reduce taxes on Americans to make them rich. By reducing taxes, he intends to increase the disposable income of individuals and families and make America rich. He reminds that the period from 1870 to 1913 is the best period in the history of US economy, when a tariff-based economic system was in place and US earned huge revenue by imposing tariffs.

Advice to American Companies Abroad

Along with the announcement of increasing import duty, Donald Trump has also advised US companies to shift their production units from foreign lands to US. If they do so, they will be saved from paying high tariffs and income tax. Donald Trump believes that due to low tariffs, the country's ability to build ships and defense equipment has eroded. He says that there was a time when America used to build a ship every day, but now ship-building has almost shifted abroad.

Donald Trump says that US companies that bring back their factories to US, will be given incentives, especially in pharmaceuticals, semi-conductors and steel manufacturing.

Sacrificing Environment and Make US Great Again

On one hand, Donald Trump talks about increasing tariffs, while on the other hand he believes that America has been harmed in the name of protecting the environment. In such a situation, he has also ordered that all wind energy and solar energy plants be removed, because they destroy land and reduce land prices. In such a situation, Donald Trump has expressed his desire to remove the obstacles in the way of mining of rare earth mineral products. He says that US has a large reserve of rare earth mineral products, but obstacles are created in their mining in the name of environment protection. He has announced that he will work to remove these obstacles and increase their domestic production.

The conclusion of Donald Trump's proposals is that he will make radical changes in America's trade system to protect the interests of American workers and their families. Although Donald Trump claims that this will improve the income of the American people and they will be able to live a better life. But will this be possible? This has to be evaluated on the basis of the principles of economics.

First of all, we have to understand that increasing tariff on import of goods can increase production in the country, but for that it is necessary that the country currently has the excess capacity to produce those goods. It is true that most of the goods in America were being produced in the past. Steel, shoes, clothes, defense equipment, ships, medicines, chemicals, all types of products were used to be produced in America. But due to the high cost of US industries and cheap imported alternatives, all those industries have since been closed and today America depends mostly on foreign countries for all these goods. In such a situation, increasing import duty may not lead to increased production, but it would make imported alternatives costlier and hence increase inflation, further burdening the Americans.

Secondly, the policy to raise tariffs on foreign countries, fails to account for retaliation by foreigners. latest retaliatory tariffs by Canada in response to 25 percent tariff on Canadian products, and advice to Canadians, not to holiday in US, is only a trailer of what’s in store for future. In international relations, such kind of retaliations are very common. One needs to calculate the losses, which US can suffer because of these retaliatory measures by other countries.

Thirdly, if US decides to abolish income tax, then it will have to be compensated by increased budget deficit, because the increase in import duties will not be able to compensate for loss in income tax collections. In such a situation, due to increase in budget deficit, inflation in US may further worsen.

Fourthly, due to increase in inflation, interest rates will also have to increase. Already the US economy has been hit by high interest rates, with demand for homes and other durable goods such as cars and other household appliances are impacted. If this inflation escalates, demand may further get hampered.

Fufthly, Donald Trump's decision to withdraw from the Paris Environment Pact; and to stop the production of various types of plants for environmental improvement in the country may adversely affect America more than any other country. Even though Donald Trump feels that his decision to abandon encouragement of electric vehicles will help the automobile industry of America to grow, he forgets that the efforts being made to protect the environment are more in the interest of US, than the world. America could have benefited from the technological development, required for environmental protection, but now it will not be able to. The speed at which the trend of electric cars was increasing in US will now be hit.

Sixthly, Donald Trump needs to understand that world today is not the same as world of 18th and 19th century. Economies have undergone big changes since then; and international specialization determines the world trade. Though, it may be a good idea to promote domestic production by different countries, but that can be a gradual process and cannot be done overnight.

Most economists of the world do not agree with the decisions of the newly elected President and they feel that Donald Trump is talking about ‘America First’, but his decisions will not only have an adverse effect on the American economy and the American environment, but America will be isolated from the rest of the world, apart from making life difficult for US people. Only the future will tell whether Donald Trump will be proved right; or the economists.