The Democrats’ group think that despite a broad bench of highly qualified people, only Biden could be the man to beat Trump, has misfired. Joe Biden has amply demonstrated that he is an old dotter, too incapacitated to be the US commander-in-chief.
This means a second-term presidency of Donald Trump the most likely outcome in the November elections, with dire consequences for America and the world as we knew it. The war in Ukraine may come to a preliminary end on Putin’s terms, but Europe will face an uncertain, frail security future, as NATO becomes toothless without the US security guarantees Trump wants to revoke. Netanyahu will get free reign in Gaza, the West Bank and Lebanon. Masoud Pezeshkian, president of Iran, elected for his promise to normalise relationships with the West and to get US sanctions lifted, will fail his voters. Kim Jong Un, the “rocket-man”, may get praise for his new tactics to send balloons loaded with refuse instead of boring warheads.
Trump’s known distain for green agendas, the attempts to mitigate – and adapt to – global warming, will not be game-changing. Even Republican states have learned to enjoy the financial rewards of Biden’s Inflation Reduction Act. The profit returns on green investments are persuasive enough. The US oil and gas industry may rejoice, but they had a very good run under Biden already, becoming a linchpin supplier in Europe’s energy woes after Russia had closed the taps. What will make things worse though is the lack of cooperation with China on climate change. In this respect, the Biden administration too has failed to free-ride on China’s willingness to supply EVs, solar panels and batteries of superior quality at artificially low prices.
Armed conflicts and the consequences of climate change, even though they will eventually have an impact on our investment portfolio, are a long-term risk, often too cumbersome to calculate with certainty. Yet Trump’s announced trade wars will have immediate, cataclysmic consequences for all aspects of asset allocation.
The self-announced “tariff man” believes “trade wars are easy to win” and wholesome for the US economy. He and his group of trade advisers (wrongly) believe that chronical US trade deficits are in itself proof of unfair trade practices, not a consequence of dissaving. The fact that the US imports, without having to pay for it in matching exports of goods and services, is seen as a disadvantage. To remedy the seeming injustice of paying in unearned paper dollars, tariffs are called for.
Trump and his soon-to-be trade representatives and advisers believe that import tariffs are a burden on foreigners exporting to the US, not a tax on domestic consumers and import-dependent manufacturers. They see tariffs as a cost-free revenue, hence their enthusiasm. They will therefore not just focus on specific, unfair trade practices, best disputed at an WTO court, or on security concerns, but wish to deter all US imports with a massive tariff wall. A “universal baseline tariff” of 10% is muted, alongside special tariffs for China amounting to 60%. Trump’s strategists reckon with vast, new income streams, eventually replacing all income tax. They should make it possible to extend Trump’s 2017 tax cuts for high-earners, a revenue loss which was at the core of a massively growing US budget deficit ever since.
Imagine in a nutshell what this means. What if Malta, still having its own currency, would punish all imports with large import duties? Our trading partners would not wish to see their profits being whipped out and will either expect our importers to pay up or export somewhere else. As a consequence, consumer prices will go up and our manufacturers will have to calculate on the basis of now-more expensive purchases, and raise their domestic sales prices too. Their exports will become uncompetitive. Very few domestic enterprises will profit from such import barriers. All consumers will be forced to pay more and consume less. The economy will contract and the tax basis will shrink. Higher tariff revenues will hardly compensate.
All this will happen under the assumption that our trading partners will not aggravate the situation by introducing reciprocate tariffs on the few exports we will have left.
Things will happen on a macro-economic level. Our country’s deficits will explode, while our currency, the theoretic Maltese lira, will ungainly strengthen (we won’t have to exchange lira for foreign currency that much), making our exports, like manufacturing and tourism, uncompetitive. This will further deteriorate our tax revenue. Eventually our foreign investors will demand more buck for their money.
Trump’s announced trade wars will have immediate, cataclysmic consequences- Andreas Weitzer
We will have to pay through the nose for our sovereign debt and inward investment will dry up. A larger part of the budget will be dedicated to alleviate hardship. We will pay more and higher interest rates on our ballooning dept. The lira goes up more.
This artificially created inflation will be regressive. People with modest income will have to dedicate a larger part of their salary on daily purchases as inflation bites, while the wealthy, who spend percentage-wise only a fraction of their income, will be less scathed. Well-connected entrepreneurs will lobby for tariff exemptions or tax rebates. Wealthy consumers will go shopping abroad. Investment and employment will go overseas. Smuggling will experience a massive revival.
The Peterson Institute for International Economics (PIIE), a prominent Washington DC-based think tank, has taken Trump by his word and tried to calculate whether Trump’s tariffs can realistically replace all income taxes of US consumers and corporations.
The US, less import-dependent than little Malta, imports goods and services worth approximately $3 trillion per year. It taxes income of 20 trillion $US, raising two trillion $US in federal taxes. To replace all income tax with new, super-sized tariffs, such tariffs would have to amount to 65% of all imports.
If this sounds easy for Trump, it is not. It is estimated that at a level exceeding 50%, tariff revenue will shrink, as imports will fall drastically. This does not take into account the damage to import-dependent industries. They may not have to pay “income” (corporation) tax, but as they go bust and purchasing power is diminished, sales taxes will yield less. The institute’s calculation does not cater for reciprocating tariffs on US exports either.
It does not calculate the geopolitical consequences. And it does not take into account the resulting depression and its costs. The PIIE only states matter-of-factly that the mooted tariff plans of the future Trump administration (60% China, 10% rest of the world) will raise no more than $225 billion, assuming that import levels remain unchanged – insufficient to replace income tax.
I am not sure how all the US captains of industry, now throwing in their lot with Trump, think they can survive in an economic climate as I have described it in my example for Malta. Because this is exactly how the US and their businesses will fare.
Interest rates will mushroom, bond prices will fall, the stock market will tank, and all our investments will devalue in tandem. I can only hope that Biden’s “God the Almighty”, who will decide Biden’s and Trump’s fate, will rule with magnanimity.
Andreas Weitzer is an independent journalist based in Malta.