During the March holiday, I attended the Singapore Management University (SMU) seminar: “Trumponomics – Impact on the world”, by Prof Augustine H H Tan. During the 2-hour long seminar, Prof Tan discussed how Mr Donald Trump got elected as President despite his radical and seemingly presumptuous policy proposals that are likely to adversely affect America and even the world. From Prof Tan’s viewpoint, the situation has played out according to a cause-solution-effect template.
The rise of President Trump can be attributed to economic downturn and the recent influx of immigrants. After the Global Financial Crisis in 2008, America has continued to suffer sub-par economic growth. Relocation of factories to lower cost countries such as China created ghost towns in America. The unemployment rate soared, comparable to that during The Great Depression. Adding on to Americans’ frustration was the social tension due to visible presence of immigrants. Rapidly changing demographics with many subcultures arising meant that Americans had to cope with sudden and unsettling changes — quite a tall order for the ordinary American citizen. Thus, it is no wonder that unhappy Americans in suburban and rural areas voted for Mr Trump who promised to “bring jobs back to America” and “build a great, great wall on our southern border”
Trump’s policies are mainly aimed at stimulating the US economy to an expected annual growth rate of 4%. He plans to eliminate 75% of existing regulations, incentivise infrastructure spending, and reform direct taxes, while leaving entitlement constant to benefit his support base. Among his radical trade policies are the withdrawal from the Trans-Pacific Partnership (TPP) and renegotiation of the North American Free Trade Agreement (NAFTA).
By the Principle of Comparative Advantage, countries benefit through international trade. Why, then, does Trump wish to sacrifice this benefit? Trade pacts are heavily influenced by vested interest. American capitalists and owners of intellectual property stand to gain, while American workers labour and still suffer. NAFTA became problematic as it expanded to include poor countries that led to a further loss of jobs at home while opening the door to even more new immigrants. Mr Trump believes that fixing these issues are the key to fixing America’s problems. However, Trump and his advisory team should note that these policies can have other consequences such as increasing inflation, worsening the trade deficit due to his protectionist policies, and allowing China to benefit from the trade vacuum in the Pacific region once the USA pulls out.
For Singapore, Trump’s presidency spells trouble. With America being one of its major trading partners, the trade balance is expected to worsen. Besides, with SGD tracking USD closely, an appreciating USD will result in a more expensive SGD, which means that Singaporean companies will be less competitive in the global market. A similar case occurred in the 1980s, when SGD was so overvalued that the asset bubble burst, leading to one of Singapore more painful periods of recession.
Learning about this situation worries me. As President, Trump is right to safeguard American interests, but his proposals are likely to be detrimental to the Singapore economy. To retain our competitive advantage, low direct taxes may have to be further lowered and thus indirect taxes like the Goods and Services Tax (GST) may have to increase. With the already high cost of living, an anticipated recession and a potential GST hike, it looks like tough times ahead for us Singaporeans.