ABC of Trumponomics: Can it make

the US a great nation?

US President Donald J. Trump

Addressing a joint session of the Congress

Monday, 6 March 2017

US President Donald J. Trump outlined his economic philosophy
known as Trumponomics to a joint session of the Congress last
week (available at;
http://edition.cnn.com/2017/02/28/politics/donald-trump-speech-
transcript-full-text/ ). He received a standing ovation, sentence
after sentence, initiated by his own Vice President and House
Speaker and followed soon by fellow Republicans. That would
have certainly boosted his morale in delivering the address since
it was a living confirmation of what he was saying. The only
bemused onlookers were his rivals in the Congress, the
Democrats.
Americans endorsing the Trumpian views

A survey conducted by the Cable News Network or CNN

immediately after the address revealed that about 78% of the
Americans who had watched the address live on TV had had
positive hopes about what Trump was planning to do for the US:
making it a great nation once again. However, the rating which
Trump has received has been a little less than the approval rate of
Barack Obamas maiden speech to the Congress at 88% and
George W. Bushs rating of 84%.

However, given the controversies which Trump had created for

Americans as well as for the rest of the world during the first few
weeks of his presidency, a rating at 78% is an impressive
endorsement of his policies.

Riding on wave of global nationalism

Trumponomics is a new economic philosophy introduced by Trump

to rescue the US from the depths to which it had fallen in the last
few decades. But it is not totally new; nor is it exclusively
Trumpian. It has been there in the past, is in the present and will
be in the future rising and falling in cycles of acceptance and
rejection.

He is not alone in triumphing it because there is a wave of the

fundamentals of his philosophy being practised elsewhere in the
world, in both rich and poor countries. This wave has now
emerged as global nationalism, quite distinct from the traditional
type of nationalism which had been confined to a nation state.

The new wave of global nationalism is directly in competition with

the wave of globalisation which had ruled the world for many
decades now. In this global nationalism, the citizens of the
country concerned come first for everything and all others have
their respective places based on what priority which that nation
would give to other nations.

In a nutshell, it rejects the idea of a global citizen who has no

national identity or distinctive characteristics in terms of ethnicity,
religion or language to mention but a few.
Theresa Mays disputation of the concept of global
citizen

This was amply articulated by the new British Prime Minister

Theresa May who had declared in a Conservative Party
Conference held in October 2016 to an applauding audience that
if one believes that he is a citizen of the world, he is a citizen of
nowhere (available at: http://www.bbc.com/news/uk-politics-
37563510).
Replies to Theresa May

It was left to Harvard economist Dani Rodrik, among many others,

to counter her in an article first published in Project Syndicate
and later picked up by Europes leftwing journal, Social Europe
(available at: https://www.socialeurope.eu/2017/02/global-
citizens-national-shirkers/).

Rodrik has reminded Theresa May of the existence of citizens of

the world by taking him as an example. Says Rodrik: I know what
a global citizen looks like: I see a perfect specimen every time I
pass a mirror. I grew up in one country, live in another, and carry
the passports of both. I write on global economics, and my work
takes me to far-flung places. I spend more time travelling in other
countries than I do within either country that claims me as a
citizen.

Angered by Mays confinement of human beings to citizens of

narrowly defined nation states, the British-Ghanaian-American
Philosopher Kwame Anthony Appiah who delivered BBCs Reith
Lecture in 2016 has declared that the need has never been
greater for a sense of a shared human fate than in the current
period (available at: http://www.bbc.com/news/uk-politics-
37788717). Thus, the bone of contention between Trumponomics
and the rest of globalised economics is a choice between a shared
existence and a solitary existence. Trump and May favour a
solitary existence while the rest of the world argue for a shared
existence.
A new US is to be created by Trumponomic policies

In his address to the Congress, Trump has emotionalised the

promise of making the US a great nation once again attributing it
to a message delivered deeply from his heart. It is filled with so
many new beginnings, implying that the US at the moment has a
deficit in them: national pride, optimism, renewed spirit, ability to
lead, strength and freedom. With that, when the US celebrates its
250th anniversary of independence in 2026, it will be a new
America which would be awed by both friend and foe in the rest of
the world.

These are certainly sentiments which would not fail to move any
American who may be feeling sad at the moment about the
perceived loss of its leading role in the global arena in politics,
economics, military power, science and technology. So, Trump
wants to build a new United States by first condemning
everything which the US has today. The beauty of that strategy is
that after nine years when the country celebrates its 250th
birthday, the full credit for building that new US, if it is really
attained by that country, would be apportioned to Trump alone.
Mantra to make US great once again: Buy American
and Hire American

Trump reveals the secret door to this new power which the US is
planning to acquire over all other nations. That is the mantra,
Buy American and Hire American, which has been chanted by all
those leaders who have adopted the path of economic
nationalism before him. This mantra is followed by several other
policy changes in US economic policy-making.

The US will refrain from being the global policeman and

benefactor of poor nations and use the savings to develop
infrastructure back at home, equip military forces with most
modern weapons and strengthen the nations security.

He will make it easier for US flagship companies to do business in

the country and make it harder for them to leave its shores.
Instead of encouraging low skilled immigrants to enter the US, he
would adopt a merit-based immigration system as is being
practised in Canada and Australia. It will enable the US to expand
its pool of high skills, increase the wages of existing workers and
help struggling families including immigrant families to join the
middle class with ease.

He has scorned the countries that send their goods to the US free
of duty while charging high protectionist duties on goods that
originate from the US. Though manufacturers have not asked him
to rectify this imbalance, he has decided to do so in the interest of
US industries. For him, such practices are unfair trade.
President of the Wall

Globally, Trump is known as the President of the Wall, a name he

has earned due to his insistence on erecting a wall along the USs
Southern border to insulate it from the evil influences from Mexico
and other Latin American countries. But Trump is not the first
world leader to do so, since China had started to construct a wall
across its Northern borders to keep Nomads from the Steppes
away from that country from around 7th century BCE and
maintained that wall for more than 1,000 years till the 15th
century CE.

The wall became irrelevant for China when influences began

pouring into that country from another side, namely, the sea,
from around the 16th century CE. The Chinese wall was built out
of its own resources; but the Trumpian wall is to be built, as he
has pronounced again and again, out of the resources to be raised
from Mexicans.

To raise those funds, he declared after he was installed as

President that he would impose a tariff of 20% on all Mexican
goods crossing the border to the US (available at:
http://www.abc.net.au/news/2017-01-27/how-trumps-plan-to-pay-
for-mexico-border-wall-would-work/8217548 ).
Who will pay for the wall?

On the face of it, it appears that it is a plan that would work well.
This is because Mexico exports merchandise goods worth of about
$ 300 billion to the US annually. Hence, a 20% duty should bring
some $ 60 billion to US coffers and it is pretty much above the
needed funds for erecting a wall across the borders. But on closer
examination, it is found that Trump advisors have given him a
dead rope. There are two issues involved.
One is the reaction of Mexicans to the proposed tax. The other is
the actual payer of the proposed tax.
Mexican reaction will hurt US farmers

In the first case, while the US imports goods worth of $ 300 billion
from Mexico, it also exports goods worth about $ 240 billion to
Mexico consisting mainly of corn, wheat and other agricultural
products.

Mexico has reacted to the threat of a duty of 20% on its exports

by announcing that it would buy those agricultural products not
from the US but from Brazil and Argentina, two other main
suppliers of those agricultural products to the world market
(available at:
http://money.cnn.com/2017/02/13/news/economy/mexico-trump-
us-corn/). This would deprive the US farmers of access to a safe
market just to the south of its borders and, according to reports,
they have already begun to panic. The Trump Administration will
have to pump money from the US Treasury to keep them afloat
until they adjust themselves to the new situation.
It is the US consumers who will pay for the wall

With respect to who would actually pay the newly imposed tariff
on imports from Mexico, it is the US consumers who would do so
since their consumer prices will eventually move up. This is
specifically true for crops like avocado an American delicacy
over which Mexico holds the monopoly power. According to
reports, there is no other source for the US to buy its preferred
avocado. Hence, the proposed wall is being financed not by
Mexicans but by Americans themselves. And worse, it would be
done by US consumers by paying its cost upfront.
Reversing the wave of shared production

An essential feature of Trumponomics is that it wants to make the

US a great nation again by reversing the wave of globalisation in
which manufacturing industry has become a shared production
throughout the globe today.

It was an American journalist, Thomas L. Friedman, who

documented this wave worldwide in a book published in 2005
under the title The World is Flat. This was the natural reaction of
manufacturing industry to keep its competitive edge undiluted in
a background of a phenomenal rise in the manufacturing wages in
developed countries. Thus, individual countries became just
assembly plants while components came from a number of
countries in the world.
iPhone is a globally shared product

A good example is Apple products. It is now documented that, for

example, though iPhone 6 is assembled in a factory called
FoxConn in China, the components for producing it has come from
production facilities in 31 countries including the US (available at:
https://betanews.com/2014/09/23/the-global-supply-chain-behind-
the-iphone-6/).

If Apple brings back iPhone production to the US, it has been

estimated that it would cost Apple an additional sum of $ 4.2
billion making it uncompetitive in the global markets. It would
give an advantage to other producers and lead iPhone to a
natural death, just like what happened to Nokia in the recent past.

According to Walter Isaacson, Steve Jobs biographer, Jobs had

told President Barack Obama at a meeting with the latter that
Apple could relocate its production unit in the US if Obama could
supply him with 30,000 engineers in the US at the salary levels
prevailing in China. The US was not producing that many
engineers in the country and therefore, relocating the factory in
the US was a near impossibility.
Trumponomics will force US industry to go for automation

Thus, Trumponomics can succeed in persuading US businesses to

relocate back at home if and only if necessary skills are available
at costs prevailing in host countries in Asia and Latin America.
This would defeat Trumps objective of increasing the earnings of
US manufacturing workers through a policy of industry relocation.
Instead of employing costly workers, US industry will go for
automating the processes.
Chinas reply to Trump

Trumponomics is known as mercantilism, which was very popular

in the 18th century CE in Europe. But thanks to the sane
arguments presented by Adam Smith in his Wealth of Nations, a
book published ironically in the same year as the birth of the US
in 1776, Great Britain threw away mercantilism and embraced
free trade. But Trump is planning to move the US back to 18th
century Europe through his economic populism.

The answer to Trump was given by Chinese President Xi Jinping

when he addressed the World Economic Forum or WEF in Davos in
2016. China had learned a bitter lesson by adopting mercantilist
policies for three decades after its Communist revolution in 1949.
Drawing lessons from its experience, Jinping announced at WEF,
that no one would emerge as a winner in a trade war (available
at: http://www.cnbc.com/2017/01/17/chinas-president-xi-jinping-
takes-to-the-stage-at-world-economic-forum-in-davos.html).
Erecting a trade barrier wall around the US and
withdrawing from global leadership

Trump has created a wall all around the US creating trade barriers
and endorsing an isolated existence for the country. It has thus
voluntarily withdrawn from global economic leadership. Ironically
that leadership is now being assumed by China by being the
champion of the new wave of globalisation. This was evident
when Trump announced that the US will withdraw from the
fledgling Trans-Pacific Partnership Agreement or TPPA of which the
US was the leader. China moved to fill the vacuum being created
by the withdrawal of the US by offering an alternative solution to
other bewildered nations.
China to fill the vacuum with a vision

This was reconfirmed by Chinese Premier Li Keqiang when he

addressed the Annual Session of the National Peoples Congress
or NPC in Beijing on Sunday 5 March 2017. He said that
deglobalisation and protectionism is rising in the Western World.
That is a worrisome development. But China opposes
protectionism of different form, said Li. He reiterated Chinas
commitment to become involved in global governance and steer
economic globalisation to see it more inclusive, mutually
beneficial and equitable (available at:
http://live.china.org.cn/2017/03/04/premier-li-keqiang-delivers-
govt-work-report-at-12th-npc-session-2/).

Chinas message is clear. Trump is promoting selfishly determined

private existence. China is promoting shared existence. Trump is
concentrating on his $ 18 trillion economy in the US. China is
targeting the rest of the global economy amounting to $ 57
trillion. Trump is closing down the US economy. China is opening
up its economy. Thus, Trumponomics has voluntarily withdrawn
from global leadership, paving way for China to fill the vacuum.
Chinese leadership is determined to go for it as pronounced by
Premier Li at the recently opened annual sessions of NPC.

(W.A. Wijewardena, a former Deputy Governor of the

Central Bank of Sri Lanka, can be reached at
waw1949@gmail.com).
Posted by Thavam