An Analysis of Post-Protectionism

With the Trump Administration in full swing, and the widely discussed “Trumponomics” (the very aptly name for the administration’s economic policy) beginning to enter into it’s early stages, it is important we dissect and attempt to vindicate the president’s plans to rebuild our economy. The Trump Administration’s economic policy is best understood simplified into three main classifications: protectionism, deregulation, and minimalist taxation. Simply by separating these, it is already apparent that this economic philosophy is substantially reminiscent of Ronald Reagan’s “Reaganomics”, however it shows distinction in one area unambiguously. Trump stresses protectionism, the basis of economic nationalism, a philosophy which strives to maximize national development and minimize international development – sometimes for the safety of the working class and other times to help small business. Many economic nationalists concede that their ideology is counter to maximizing the economy. Not only this, they do it without shame, largely because it is not their goal. The aim instead is to ensure societal stability, which they believe to be a more important factor worthy of prioritization. Likewise, economic nationalists correlate a globalized economy with an eventual globalized society. This is a direct response to the widely adopted “liberal internationalist” foreign and economic philosophy the establishment on both sides have been openly supporting since the end of the Cold War. A common misunderstanding with Trump-era protectionism is that it follows the tariffite policies of old. This, however, is largely untrue. Since the president has taken office, he has enforced only one act reminiscent of classical protectionism, a 24% tax on imported Canadian Lumber. Other than this instance, we have seen Japan introduce a 50% tax on all frozen beef imports, directly hurting the United States, but nonetheless out of the President’s control. Generally, Trump’s economic advisors have pushed for tax deductions to businesses that threaten to move overseas rather than further pursuing tariffs. The most notable example of this method being used can be seen in Trump’s deal with Carrier, keeping around 1,000 jobs in the state of Indiana. As expected, many have criticized this method. They see this as setting the stage for an invariable amount of business threatening to offshore, without actual intent, in exchange for tax breaks and government grants. Others believe that a protectionist policy that utilizes rewards combined with penalties can be a plausible solution to the massive amount of expatriate plants. This idea of rewarding, or appeasing by some, is a notable contrast to the economic nationalism a Bernie Sanders would support. Even if this new direction proves to not work as effectively as he may hope, Trump still has another trade reform he can institute. A Border Adjustment Tax, or a BAT is a value added tax levied on imported goods. Trump and the Republican Party have thrown around the idea of a BAT to compliment the president’s trade policy. Although they have recently removed it from their main tax reform proposal, it is expected to be added again in some form of the original concept. Understanding this policy is very important, especially if you are a retailer. This tax aims to eliminate the outsourced middle-man in the creation/delivery process. What makes the BAT a consumption tax and not a tariff is that exported goods are exempt from taxation, and imported goods sold domestically are subject to taxation. Many economists criticize the tax as possibly appreciating the dollar too much, others believe it will do the exact opposite and radically depreciate the dollar. Alan Auerbach has an answer to those condemning the BAT as appreciating the dollar too much. He states, “If a border adjustment on a 20% corporate tax were to be implemented, economists theoretically expect the U.S. dollar to appreciate by 25% (relative to the world basket of currencies) which would fully offset the 20% tax paid by importers and the 20% subsidy received by exporters.” Unfortunately, the Federal Reserve has planned on maintaining a target of 2%, the implementation of a BAT would require them to further contract the money supply. Some believe that this rapid shift can risk the chance of a global recession. The lack of a true general agreement may be a good sign for the Trump administration, incidentally, as most of their other proposals are almost unilaterally at an economic consensus against them. Although there are certain instances Trump may use a tariff, he is aware the days of massive penalties for economic outsourcing are over. In other words, Trump is opting for conserving American Factory Jobs rather than being reactionary. Because of this, you may hear the words “post-protectionism”,”centrist protectionism”, or “Trump trade” thrown around – they are referring to this philosophy.

Sources:
Wikipedia: Economic Policy of Donald Trump

Investopedia: Definition of a Border Tax

Forbes: Border Adjustment Tax Effects 1

Forbes: Border Adjustment Tax Effects 2

CNN Money: Lumber Tariff

Forbes: Frozen Beef Tariff

New York Times: Carrier Deal

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