Sadie Keljikian, Top Billion Finance
Donald Trump’s presidential victory has raised concerns about the future of international trade.
A significant part of Trump’s platform has been a push to raise tariffs on exports from other countries to the US in an attempt to revive the US manufacturing industry and create jobs. Specifically, Trump has said that China absolutely must reform their trade practices. He’s promised to impose a 45% tariff and officially accuse China of currency manipulation, should current patterns continue. The Trade Facilitation and Trade Enforcement Act of 2015, signed by President Obama, addressed this issue. Trump, however, insists that the US needs to rebuild domestic manufacturing and condition trade with China carefully.
Trump’s plan doesn’t end with China; the president elect intends to discourage importing and outsourced manufacturing globally. The plan leaves European, Asian and Mexican manufacturers concerned with the possibility of an end to trade with the US, home to the world’s largest trading economy.
Concerns for the future of the global economy have been circulating since the United Kingdom notoriously voted to leave the European Union this year. Voters in the UK and US have demonstrated a focus on internal economic development. This would mean step back from participation in the global economy. The shift concerns industry leaders in other parts of Europe, as well as Asia and Central/South America, as both countries are powerful international traders.
Volkswagen Chief Executive Matthias Mueller and VDA, the German auto industry association, expressed particular concern. The industry has already been in a state of panic since the Brexit vote went through. Now, they are concerned that the US will take a page from China’s book. VDA said today, “It is to be feared that the United States under a new President, just like China, will mainly focus on their own economies, at the expense of international trade flows and relationships.”
The election result has added to uncertainty about global economy in other respects as well. Overnight following the election, global securities dropped abruptly. S&P 500 futures fell approximately 5%, its limit. The Nikkei stock index in Japan fell about 5% as well and the Mexican peso fell to a record low. Most of the immediate effects wore off by Wednesday morning. However, concerns continue to grow about the future of international trade under Trump’s administration.
It is currently impossible to tell if Trump will follow through with these specific plans, but presidents hold a surprising amount of power over trade policy, even without congressional approval. Trump intends to halt any existing international trade agreements, including NAFTA and the recent Trans-Pacific Partnership. A recent study by the Peterson Institute warned that China and Mexico may retaliate in response to high tariffs. They even suggest that the potential response could cause another U.S. recession and cost 5 million jobs. Again, it is impossible to predict how or if these eventualities will play out, but the potential disturbance in the global market has certainly raised questions and concerns on an international scale.
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