Monday, January 04, 2016

President Trump and the return to protectionism

President Trump
Donald Trump is likely to be the next president of the United States. He will "make America great again". He will bring jobs back into America.

How will be do it? He will create a wall to stop illegal immigration. He will return the Syrian refugees back to their country. He will impose a tax of 35% on cars made in Mexico and exported to America. He will re-negotiate the global trade agreements. He wants to negotiate "smartly".

Impact on America
America was great in the days when there were plenty of jobs in America and a large middle class. They earn good wages and global trade was a smaller proportion of their economy at that time. Things were more expensive, relative to wages, in America in those day, but they got along fine. Perhaps they spend a bigger proportion of their wages on cars and other "made in USA" products, and have less to spend on houses. Which meant that houses were more affordable, and that was a good thing.

The American economy is big. They can afford to be protectionist. And the people will do better when there is a greater certainty of jobs in the country. With a stronger economy and more real jobs in the country, the government can collect more taxes and reduce their deficit and debts.

The American voters like his message (as evidenced by his strong poll standing).

Impact on China.
How will this impact the China economy? They have already embarked on a policy of domestic consumption. The leaders in China are smart and visionary.

Their economy is big enough for them for them to do well with a reduced volume of global trade. They will sell less to the world, but what is the point of selling more and keeping the surplus in US dollars and US treasury bonds?

The same situation will also apply to Japan and South Korea.

Impact on Singapore
Small countries like Singapore may be hurt by a more protectionist world. But we can also adjust.

We do not really need to bring in many foreigners to serve the global economy or the global financial sector. With a smaller economy due to diminished global trade, we will have less jobs for foreigners. The remaining jobs can be done by Singaporeans.

What about the jobs that Singaporeans do not like to do? We need to pay higher wages for our technical and skill workers to attract the locals to do the jobs. The Germans, Australians and many other countries have found the solution through higher wages. Singapore will also have to follow this route.

But we can take in a limited number of immigrants to do these jobs, and give them permanent residency, like our forefathers who migrated into Singapore.

Will higher cost of labor lead to higher cost of living in Singapore? Yes. But that meant less spending on houses (and house prices will be cheaper) and on cars. And that will also be a good thing.

The Singapore government will have a smaller budget surplus. They cannot afford to pay outrageous salaries to their ministers. And that would be another good thing.

My view
The big global corporations and their lobbyists will fight against Donald Trump. Most of the politicians in America, who depend on funding from the lobbyists and special interest groups, will also fight against Donald Trump.

But the majority of voters will be "smart". They will vote Donald Trump to be the President of the United States in 2016.

I personally welcome a change to a more protectionist world. It will reduce the income gap in most countries and lead to a more stable society. Ordinary people will feel more secure about jobs, the cost of living and the future for their families. They can have a more balanced and happier life.

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