Trump’s victory reflects many Americans’ frustrations with living standards and inflation during the Biden-Harris administration. Vice President Kamala Harris struggled to connect on these issues. Her campaign focused more on Trump’s legal troubles than on a clear economic plan of her own, leaving many voters unconvinced.
Yet Trump’s own economic programme also contains worrying contradictions. In his first term, he ran substantial deficits through tax cuts and increased government spending. This was hardly the free-market approach he had promised. Instead, it was old-fashioned deficit spending.
Now he is pledging to do more of the same, but on an even grander scale.
Trump has proposed steep tariffs on imports. These would reach 60 percent on Chinese goods. Other trading partners face tariffs of 10-20 percent. These measures would slow international commerce. The resulting higher consumer prices could cancel out any positive effects from his planned tax cuts.
America’s public debt already stands at eye-watering levels. It exceeds 120 percent of GDP.
For now, the United States enjoys what economists call an “exorbitant privilege”: It can borrow extensively in its own currency because the US dollar is the world’s reserve currency.
But even this privilege has limits. This is especially true if trading partners seek alternatives to the US dollar in response to aggressive tariffs.
There are lessons for Trump from Liz Truss’ brief and ill-fated period as British Prime Minister. Her attempt to cut taxes while increasing spending caused a fierce market backlash, ending her tenure within weeks.
America’s reserve currency status provides far more protection than Britain ever enjoyed. Yet even this shield has its limits. Trump’s proposed fiscal irresponsibility dwarfs Truss’s experiment.
Trump’s trade plans would have major global impacts. His tariffs could reduce GDP in the European Union by 0.6% and cut China’s growth by over two percentage points.
New Zealand is heavily reliant on trade, and Trump’s deglobalisation policies threaten our export markets. Their impact on global growth will weaken international demand for our exports
Strengthening our fiscal position and diversifying our trading relationships beyond traditional partners are urgent priorities in this new economic landscape.
Regardless of political promises, economic realities are inescapable. Trump’s “golden age” will more likely turn out to be a dark age if his strategy is based on deficit spending and trade wars.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
Now he is pledging to do more of the same, but on an even grander scale.
Trump has proposed steep tariffs on imports. These would reach 60 percent on Chinese goods. Other trading partners face tariffs of 10-20 percent. These measures would slow international commerce. The resulting higher consumer prices could cancel out any positive effects from his planned tax cuts.
America’s public debt already stands at eye-watering levels. It exceeds 120 percent of GDP.
For now, the United States enjoys what economists call an “exorbitant privilege”: It can borrow extensively in its own currency because the US dollar is the world’s reserve currency.
But even this privilege has limits. This is especially true if trading partners seek alternatives to the US dollar in response to aggressive tariffs.
There are lessons for Trump from Liz Truss’ brief and ill-fated period as British Prime Minister. Her attempt to cut taxes while increasing spending caused a fierce market backlash, ending her tenure within weeks.
America’s reserve currency status provides far more protection than Britain ever enjoyed. Yet even this shield has its limits. Trump’s proposed fiscal irresponsibility dwarfs Truss’s experiment.
Trump’s trade plans would have major global impacts. His tariffs could reduce GDP in the European Union by 0.6% and cut China’s growth by over two percentage points.
New Zealand is heavily reliant on trade, and Trump’s deglobalisation policies threaten our export markets. Their impact on global growth will weaken international demand for our exports
Strengthening our fiscal position and diversifying our trading relationships beyond traditional partners are urgent priorities in this new economic landscape.
Regardless of political promises, economic realities are inescapable. Trump’s “golden age” will more likely turn out to be a dark age if his strategy is based on deficit spending and trade wars.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE.
4 comments:
It would assist NZ if our Coalition Government introduced some focused Tariffs as a lever for productivity for NZ sheep farmers. I suggest an enormous tariff on NON wool carpets and furnishings which would eliminate their only advantage - Price per metre. Woolen products are natural fibre , Dont explode and burn your house or family members, reduce fossil fuels if that is your focus, cut our overseas trade deficit and would reward farmers financially.
Sorry Basil
The only way to reinstate crossbred wool as a significant contributor to our economy is to allow it to take its rightful place as an integral part of our home insulation policy.
Current policy allows the importation of huge quantities of synthetic insulation and floor covering products which are inferior to wool not only at the coalface but also as biodegradable and fire resistant products when they are employed as the nation’s buildings’ security insurance. How dumb is that?
We just need to ban the import of those dangerous products and let the market decide the future of our home grown alternative. Government can do this with an order in Council. No need for the state controlling the price farmers get for their product. As with fine wools, manufacturers will pay a fair price for a product they can turn into the most environmentally appealing end use.
We don’t know how lucky we are.
Bibby says
"We just need to ban the import of those dangerous products and let the market decide the future of our home grown alternative."
Anybody else spot the inconsistency of approach here? Seems to me you either have a free market or you don't. But to advocate for both points of view in the same sentence seems rather odd. And since when did regulating by Order in Council have anything to do with free markets?
No inconsistency here .
It is a function of governments in the Free World to legislate or impose regulations that are in the best interests of the people who voted them in.
Some of those measures may be seen as undemocratic by those in opposition but the test will be when the government comes up for re-election and puts its track record up for all to see.
Presumably, if they are seen to have taken steps to keep the people and economy safe during their term in office, they will be re-elected. Simple really!
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