US overconsumption led by Capitalism has created the need for Americans to buy more goods and services to presumably live a better life, to live the American dream. That of course is debatable depending on your sociopolitical – economic views, let’s leave it there.
As a result, US based companies like Apple have shifted their operations to cheap labour countries such as Mexico and sell their products back to the US for higher margins thus making US-made products less attractive due to the labour cost difference.
Foreign companies and manufacturers in countries like China have thus created more and more claims on American assets over the years hence the large trade deficit US has with other countries. The purpose of tarrifs is to force the consumer to restrain from buying imported goods as the producer will transfer the tarrif rate (and / or a large part of it) to the consumer.
In Trump’s mind, American consumer will thus be forced to buy US MADE products. That’s where Trumpeconomics kick in. Foreign and US companies will have to build their factories in the States to avoid paying tarrifs thus creating more jobs and more wealth for the American people. Here’s the problem however. Markets dont react well to uncertainty. Who’s gonna say that the tarrif rate will remain the same or not in one week or in one year or in 5 years from now? To build a factory in the States and see profit it will generally take 3-5 years minimum when Trump will be long gone and the regime will possibly shift back to the Democrats due to the recession that will be caused.
Trump is a businessman , a dealmaker but above all, a visioner, in my opinion. If Trump could remain in power for the next 10 years his vision would stand a good chance to succeed. Drastic changes require drastic measures and yes a recession would be a necessary evil to make America great again “MAGA”. However there is simply not enough time to make that happen while uncertainty will be and remain at its highest.
If on the other hand US companies return to America for their manufacturing and foreign companies also invest similarly in the States to avoid these tarrifs, then it could play out in Trump’s favor and the Republicans could have another term. That could indeed make Trump’s vision a reality believe it or not. Is America the pot of gold that everyone wants a piece of or is this the beginning of a global isolation of the US from its partners? All in all, whether there is a new sheriff in town or this proves to be a complete clusterfuck only time will tell.
This article expresses the personal geopolitical and economic opinion of its author, Mr. Paris Hadjipanayis and may not be depicted as financial advice. It is for informative purposes only.
