The first few weeks have been hyperactive for US President Donald Trump. Win some, lose some. The immigration policy has become a public relations disaster. So far we have heard very little on 'Defence Policy'. Trump should remember Eisenhower's 1952 lament that the military industrial complex is the most powerful grouping in the US. It is so even today. The Department of Defense (DoD) has a budget of US$ 800 billion. The State Department has a budget of US$ 70 billion (2016 figures). The military chiefs call the final shots. The military chiefs wish the wars to continue (Afghanistan, Libya, Iraq, etc). It's good business for the armament companies. Perhaps Iran next?
The contours of Trump's economic policies are emerging. First, his economic team. At cabinet level he has Steve Mnuchin at Treasury (from Goldman Sachs). Wilbur Ross will head Commerce. Ross is an investor and bankruptcy lawyer from the Wall Street. The State Department will be led by Rex Tillerson, an oil man (Exxon). Other cabinet level positions (not the cabinet itself) include Robert Lightherizer at Trade Department, Gary Cohn as chair of the national economic council. Cohn was the President of Goldman Sachs. To round off the economic team, the regulatory czar is Carl Icahn. This team reeks of the Wall Street, hard capitalism and Big Bucks.
Trump's economic policy, as gleaned so far, is based on the following five principles:
Tax amnesty (repatriation of profits held abroad by MNCs);
Lowering tax rate;
Infrastructure spending;
Deregulation;
Renegotiating (or liquidating) trade deals.
Lets do a brief analysis of each:
Tax amnesty
American multinationals have more than one trillion dollars parked offshore due to tax inversion. The Information Technology companies have US$ 850 billion. Healthcare US$ 460 billion. Industrials US$ 270 billion. Consumer staples US$ 240 billion. Financials US$ 215 billion. If a Trump campaign proposal regarding untaxed foreign earnings becomes law, a flood of US$ one trillion or more could come back to the US. It would be used for dividends, share buybacks and acquisitions. All thus, combined, could add 1.5% to the GDP.
Lowering tax rate The current rate of corporate tax is 35%. But there is a loophole: if a company leaves foreign earnings abroad, the money is exempt from the US tax until it is returned to the parent company as repatriated income. The Trump team is weighing options to bring down corporate tax to 15-20 %.
Infrastructure spending The US has a woefully inadequate infrastructure. Scandinavia, Germany and Japan are all ahead. Roads, bridges, ports, dams, etc, all have to be built or upgraded. This may require an outlay of US$ 2 trillion over the next three years. This programme may create up to one million jobs (but who will man them? The Mexicans and other immigrants are being stopped at the border).
Deregulation After the financial meltdown of 2008, the US government over reacted. Perhaps, justifiably so. US$ 14 trillion was wiped out from the stock markets of the world, led by the US. "Too big to fail" institutions collapsed like a house of cards. There was universal rage against the Wall Street. Main street cried out for sanity, accountability and regulation. The two acts, the Sarbanes-Oxley and the Dodd-Frank, were duly enacted, to protect the consumers, investors and corporations. The Trump's team wants to abolish the two acts. It may be back to the casino culture again.
Trade deals During the election campaign, Trump promised to scrap, or renegotiate the previous trade deals. He has already moved on the Trans-Pacific Partnership (TPP). China loves this; now China will have a free hand. America's two most important relationships are with Mexico and Canada. If NAFTA is scrapped both Canada and Mexico shall react very strongly. The other trade deals, especially with the EU, may have a severe impact on the already fragile economies in Europe.
(The writer is the Former Executive Director of the Management Association of Pakistan. The views expressed in this article are not necessarily those of the newspaper)
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