By Madhav Ashar
Brexit and the victory of Donald Trump in the US Elections are clear indicators of the rise of proletarianism and anti-globalisation trends world-wide. Already the media is full of reports of increase in racist, misogynist and anti-migrant behaviour by unruly elements who proudly proclaim that they have the support of Trump.
President Donald Trump, a business tycoon, is known for his aggressive stance towards many issues. He won the Presidency because of his promises and has yet to achieve them. Undoubtedly, it will be a difficult task for him to fulfill his commitments.
Most important part of any new government is to see and forecast the impact of it on the world countries.
Some of his proposed commitments include:
The Glass-Steagall Act
The bill was passed in 1933 with the view to handle banking sector which were influenced by commercial banks and which led to the great crisis of 1929 which saw the failure of over 5000 banks. The Govt. took a step and minimized the investments by banking sectors so that people could gain trust again. However, this act was broken down again in 1999. The newly-elected President is in favor of bringing back this Act to improve banking sectors.
Tax Reforms that will “Make America Great Again”
President-elect Trump committed to lower taxes to as low as 15% which is impractical but he might do it with the view that the business giants will generate jobs with the tax money saved. This may create jobs but the fear remains that the money saved by the wealthy would be used, instead, for investments in assets instead of in human capital. This step has been endorsed by Alan Greenspan, Federal Reserve Chairman, in an interview on CNBC.
This step would also help to bring back to the US fold those companies that had set up their holding companies in “tax havens”.
He has also committed to lower individual taxation rates into three brackets of 12%, 23% and 33% with a zero percent rate for many.
India can be affected with the tax cut as it is an emerging market. If the above scenario happens, Indian trade industry could see some adverse effects.
Wall Street
The morning after Trump was elected President, Dow Futures first fell about 800 points and in open market jumped up about 300 points high. DJIA and S&P 500 hit intra-day highs on 10th November. Does this indicate that the investors have accepted Trump? That could be one of the reasons, one would imagine. Another reason could be the policies about tax cuts, infrastructure, investments, and deregulation of Dodd-Frank Wall Street Act which came into existence after the sub-prime mortgage crisis, which he had proposed earlier. Trump’s policies on Pharmacy and Healthcare clearly reflected on Wall Street with their shares prices showing green.
Mohammad El Erian, Chief Economic Advisor at Allianz, said, ‘Trump must move fast to calm markets,” in reply to Wednesday’s market fluctuations.
Over the world it was a positive reaction. Mexican peso was record low on the election night and fell 13.2% but it recovered on Wednesday because of Trump’s statements in favour of NAFTA.
Many Wall Street investors and market participants have affirmed that they are extremely bullish on Trump.
NAFTA (North America Free Trade Agreement)
NAFTA is an agreement signed by Canada, Mexico and the US creating a multilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the free trade agreement between the U.S. and Canada.
Trump has promised to renegotiate the North American Free Trade Agreement — or withdraw from it, as part of his First 100 days Agenda.
For more than two decades, NAFTA has been the backbone for trade between the three Member-Nations, allowing manufacturers and farmers to do business easily across these nations.
But Trump says some U.S. manufacturers have moved jobs to Mexico, so he wants to increase import duties and hence generate income for the country.
Also, NAFTA is a multilateral treaty signed by Congress. Changing it “would not be a trivial matter,” an economist said. “It’s going to be difficult to roll back trade agreements that already exist.” Albeit it is not as easy as it seems. But Trump had promised this as one of his “trump cards” to increase his vote bank.
NAFTA has benefited Canada and Mexico with exports as compared to pre-NAFTA period. Canada almost doubled its exports while Mexico tripled its imports and exports up to six times.
Fight against ISIS
Trump has always been aggressive over the ISIS issue. He even once said to a news channel that he would bomb ISIS and take their oils and sell them to US companies. Defeating ISIS and other terror groups would take some time, efforts and man-power for any country. Russia has been in favor of Trump for his stance against ISIS. Also, Trump’s being anti-Pakistan could have a positive impact for India. Action can be taken on our never-ending bad relations with Pakistan by dominating them with the help of US.
Going after China
Trump argued that China’s currency policies are hurting America’s ability to export its products by making their goods artificially cheap, and that its loose intellectual property protections allow Chinese firms to steal American technology.
Trump could take China to the World Trade Organization, which adjudicates claims of currency manipulation. But he is more likely to use presidential power to slap tariffs on Chinese goods — the rate might be as high as 45 percent — to force them to comply. This would make Chinese exports to the US much more expensive, and thus do serious damage to China’s economic growth.
The problem, though, is that China could retaliate in the exact same way, slapping similar tariffs on US exports to China. This is what economists call a trade war: Instead of cooperating and keeping trade open, countries punish each other in an attempt to get some kind of advantage.
Even economists fear this and forecast that it would end up harming US more than China.
US airplane manufacturers like Boeing, for example, are based domestically and export a lot of planes to China. US electronics companies, like Apple, outsource many materials from China.
Economist suggested that it would suck money and jobs out of the US. An estimate of 4 million jobs cut can be presumed for trade war with China and Mexico.
Trump for India
“Ab ki baar Trump sarkar” was one of Trump’s campaign lines for attracting Indian-American voters. He also addressed Hindus and stated PM Modi was an enthusiastic person and would like to be his close ally. This will lead to good Indo-Us relations and it is always good for any nation to be friendly with the Superpower of the world.
A possible negative impact can be to assume that Trump is an American at heart and would do what his country needs and if it ends up tearing down Indian IT companies then he would not hesitate in doing it.
Read our pre-election article here