[yt_dropcap type=”square” font=”” size=”14″ color=”#000″ background=”#fff” ] A [/yt_dropcap]s it happened, the unimaginable, the least possible, a threat to some, and a concern for others. Aye, I talk about the rhetoric spewing, rabble-rousing and populist Mr. Trump. His triumph on November 8th, 2016 sent shock-waves and the whole world was put in a state of quiver.
The financial markets yawed like a boat turning turtle. The far-eastern’s gasped. The Europeans confounded. Middle-East intimidated. I, not at all surprised. From oil policies to tax reforms Mr. Trump carries some radical ideas. His red power tie sometimes throws flashes of the ‘new’ future waiting for the world.
Being a businessman, which used to be his prime identity, himself he is well aware of the ploys that U.S companies use holding billions of dollars in alien lands which ought to sit in America. Take the case of for example, Apple Inc. The recent tax issue gave me a chance to read about the two companies that Apple has founded in Ireland. Apple holds approximately $180 billion offshore due to the sweat-inducing corporate tax of 38%. Also, according to an estimate top 50 U.S companies hold $1.4 trillion offshore. According to Citizens for Tax Justice, an advocacy group, U.S companies due to these tax havens avoid $90 billion in taxes. Enough for context. Mr. Trump has vowed to introduce diminutive taxes providing a pat on the back of balking U.S companies inviting them to suck the money back into their homeland. Good for the US but not for the world.
But there is an issue. An inherent contradiction. If he reduces down the taxes then by which magic wand is he supposed to ramp up the government spending? Debt, obviously. Also, to consider the case of bringing back jobs to US consider the curious case of “Rust Belt”. The north-eastern region which was the hub of industry gradually slowed down and the blame was thrown on the Chinese. A research was carried out and to everyone’s surprise it was find out that only 10-20% jobs were lost due to Chinese or other foreign intervention and more than 80% was due to Automation. Anyhow, if we assume that he brings the jobs back then better employment conditions which in turn would add to the GDP ergo, increasing inflation insinuating to the interest rate hike for which the Federal Reserve Bank of America already looks very keen. But this is my hunch, an educated speculation. The opinion that Fed’s autonomy will itself be affected as in manipulations is also rife. As The Economist says:
“Mr. Trump has expressed criticism of the monetary-policy choices of Janet Yellen. If she stays on the job her term will nonetheless be up in 2018, while Mr. Trump is president. Before then, he will have the opportunity to fill seats on the Boards of Governors.” Also, “It is not impossible that that Mr. Trump would prefer a less independent Fed committee to getting him re-elected, however, in which case policy could actually become more dovish leading, may be to faster growth in output and a rise in inflation”.
(If it went as per my speculation then) an increase in the interest rate will have two effects. The one will be, as all the economic-savvy individuals will know, the difficulty countries with huge debt and import from the U.S will face. As dollar strengthens countries like Mexico, Russia, Philippines, Turkey and Chile, with large onus of dollar debt, are at the greatest risk. The second one takes us to the far-east-China. Last year when the FOMC increased the interest rates, around $300billion of capital fluttered from the Chinese markets flying all the way to Americas and perched themselves on the branches of Wall Street. Also, as China segues into the ‘new-economy’ a weaker Yuan will not help. On the contrary, it will hurt the domestic consumption (which is to go up as per the new plan).
A Pro-driller: A Cold Environment
The news that Mr. President is mooting to cherry-pick Mr. Harold Hamm, chief executive of US private oil firm Continental Resources, has provided a support to oil prices and a disappointment to the environmentalists. According to Thomas Watters managing director with S&P Global Ratings, as the USA today reports, Trump presidency cherish not a profound control over the oil dynamics. It is price that had, is and will guide the process. Alluding to the recent fall in rig count he establishes that it was not due to any regulations but solely because the plummeting prices. Another perspective, as scribbled down by an energy expert in Forbes magazine, is of the view that the domestic mid-stream sector is going to see its heyday in the future. As Mr. Trump, a corporatist, doesn’t shares the commensurate amount of alarm concerning the global climate changes the Keystone XL pipeline, rejected by the Obama administration, may restart. Another one is North Dakota Pipeline which, due to protests by the environmentalists, was not sanctioned may now get an approval.
Albeit Mr. Trump has not unveiled any minutiae of his revolutionary political and economic agenda, the fact remains that by the virtue of his unnerving and challenging campaign the global mind is on a defensive mode. His precarious tilt towards resuscitating economic nationalism and a cloudburst of xenophobic venom seem to hinder the already tepid globalization process for the developing nations. One may see a modicum of retreat from his early promises but the world still await, in a state of contemplation, to see the tricks that new occupant of White House has up his sleeve.