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More Great Deals!
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 More Great Deals!The strategy is to make imports more expensive (about 20% on average). This will NOT increase inflation by 20%, since not everything people buy is totally imported; but by the time you sort through what percentage of foreign-made goods find their way into the supply chain and then the shopping trolley, it's about a 5% jump. That increase in living costs is enough to depress demand for American-made goods just as much as for foreign imports. Less demand, fewer jobs, more unemployment. BUT!! It also means that American manufacturers will be able to put up their prices, given that foreign competition won't be as stiff. So even the American-made components will be able to demand higher prices. Add another couple of percent to that inflation figure. Add another percent or two to the unemployment rate. The investors and shareholders will be happy, but not the workers who are being laid off. But of course, the guys with the cash won't invest more capital in more production capacity. Why would they? By the time that extra capacity comes on line, those tariffs might have disappeared. Heaven knows that even Trump has pushed them up and down through a huge range purely on a whim, so how can anyone be confident what they will be like in three years' time? Nah, just make the most of what you can in the meantime while the honey pot is overflowing! Companies will promise to 'on-shore', just to win 'deals' with Trump; but they will find any number of reasons to delay actually committing money. At least until after Trump's term is ended, and by then Trump couldn't care. So don't expect any rise in job opportunities. With higher unemployment, domestic demand will drop even lower. More layoffs, and the spiral continues. But not all is lost! Just like in the Great Depression, this will cause asset prices to fall as people are forced to default on mortgages and/or sell for whatever price they can get, to support themselves. The big winners, as in the Great Depression, will be those who go in cashed-up and ready to take advantage of the forced sales. The gap between the wealthy and the bare subsistence workers will widen even further. Simultaneously, the world will realise that this will mean the greenback is going to drop in value. Buying Treasury bonds will be a guaranteed way to lose money, as American inflation (and therefore dollar depreciation) more than eats up the nominal return on the bonds. Already foreigners are selling off American bonds as fast as they dare, without going so fast that their remaining holdings become worthless. But they ain't buying more, and that means the Treasury can't just roll them over as they always have. Instead, 'quantitative easing' (another term for printing money) will take its place. (Remember how the Republicans screamed blue murder when Obama did this after the GFC?) That will feed inflation even more. See above for the consequences of that. There's only one way out of this. That is for America to produce more for export instead of making up the trade deficit by selling bonds. But competing with the rest of the world won't be easy, and it will be even harder for domestic manufacturers whose inefficiencies are being protected by high tariff barriers. The most obvious economy available to them is to depress wages; that's how nations like Bangladesh and Vietnam manage! America could soon be competing against these countries for the title 'Sweatshop of the World'. THAT is how to Make America Great Again! |
