Dissecting Trump’s Plans
A common saying in politics is that elections are not so much won as they are lost. This certainly appears applicable to the upcoming elections in the United States. The weakness of the Democrats, particularly President Biden, has paved the way for the Republicans and Trump. However, the question remains whether Trump and his supporters have a clear and coherent programme for the future of the United States. This question must first be viewed against the backdrop of the significant divide that has emerged in the West, particularly in the US, between workers who have to compete with the much lower-paid labour force in China and other emerging countries and those who benefit from globalisation. Previously, this was less of an issue because the West utilised much more advanced machinery and work methods, but that time has long passed. Consequently, the real disposable income for the first group has been stagnating, if not declining, for many years (especially following the price surge of basic necessities during and after the COVID-19 crisis). These individuals are increasingly angry with politicians from the established parties, as the group of ‘globalisation winners’ has indeed made significant gains.
A Programme to Turn Losers into Winners
Trump shrewdly exploits this societal divide by promising to do everything possible to help the ‘losers’ recover. His proposals include:
- Tariffs on All Imports, Especially from China: With its 1.4 billion inhabitants, a vast military, and a dominant position in many strategic economic sectors, China is seen by many as inevitably becoming the most powerful country, thereby increasing competition. Trump aims to counteract or delay China’s rise as much as possible.
- Ending the US Role as the World’s Policeman: Trump advocates letting the rest of the world resolve its problems, saving the US significant amounts of money that could be better spent on its own population. A prime example is reducing support for Ukraine, Taiwan, and Europe, who should manage their issues independently.
- Halting Immigration: Trump argues that immigrants create too much competition in the labour market, as they are willing to work for much lower wages.
- Investing More in Oil and Gas Exploration: Due to the energy transition, energy prices have significantly increased, which is unaffordable for the 'ordinary person'.
- Drastically Lowering Taxes: Trump believes this will automatically pay off through much higher economic growth.
Widespread Consequences?
However, Trump’s plans face several criticisms:
- Labour Shortages without Immigration: If economic growth increases due to tax cuts, it will soon encounter a labour shortage without immigration. This means higher inflation, prompting the Fed to raise interest rates until growth returns to its potential rate (2% or slightly below).
- Impact on the Dollar Exchange Rate: Higher interest rates and import tariffs will significantly increase the dollar’s exchange rate, negating the intended competitive advantage.
- Environmental Deterioration: Increasing the consumption of oil and gas will further worsen climate change. The latter already leads to approximately 25% lower crop yields and increasing water shortages in large parts of the world. This could escalate geopolitical tensions, providing China and Russia with opportunities to expand their influence if America adopts an isolationist stance.
- Domestic Industry Stagnation: Historically, shielding domestic industries from external competition leads to insufficient investment in new products and the modernisation of production methods. As a result, competitiveness compared to the rest of the world will deteriorate.
- Tax Cuts Rarely Pay for Themselves: Experience shows that tax cuts rarely pay for themselves and are likely to lead to larger budget deficits, pushing up interest rates overall. Public finances could spiral out of control.
Moreover, if Trump manages to implement his plans, Europe will need to allocate much more money for defence, combating climate change, and interest payments. This does not bode well for public finances, and European cooperation could also come under severe strain.
