JOHANNESBURG - After the surprise winning of the US presidential election by Donald Trump, many were quite sceptic over prospects and the effects if he would deliver on his election promises.
Among them were ending Obamacare, imposing a travel ban on Muslims entering the US, to build the wall with Mexico, moving the Israel embassy and to deport undocumented immigrants.
Some of the promises had been delivered, but most were stopped in court. The three important promises were, however, tax cuts (a $1.5 trillion - R21.6trln - overhaul plan), signing waivers on the Iran nuclear deal and imposing several tariffs on imports from various countries, including China and South Africa.
The US citizen comes first policies are strongly in line with the successes of openness and globalisation policies of previous presidents and other developed and emerging market economies over the last five decades.
The starting point of his current efforts, namely imposing tariffs on steel (including from South Africa), aluminium products, washing machines and solar energy equipment, kicked off in March.
Trump declared on Twitter: “When a country (US) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good and easy to win.”
The proposed tariffs implementation on Chinese imports alone is $635bn. Although only $74bn were enacted, the threats of imposing the rest seem real and could be implemented in a hurry. Trump seems to ignore all the rounds of negotiations set over the last 40 years at the World Trade Organisation.
He had warned that he would hit quickly against another R400bn in imports from China if they retaliate. Why can Trump get away with his protectionist policies?
The answer is easy. He still rides on the back of the successful implementation of stabilisation policies after the worst recession in the US in a century during 2009.
Prudent fiscal, monetary and trade policies by the Obama administration, with very stringent stress tests on commercial banks, are highly successful.
Especially the highly acclaimed fine tuning monetary policies implemented by Federal Reserve chairperson Janet Yellen had pushed the US economy into one of its longest upswing phases.
It helped to keep the inflation rate subdued and stimulated economic growth on to a stable path as it supported the modest package of tax cuts and spending increases implemented by Obama in 2009.
These two policies helped the US economy to maintain a subtle upswing, growing at rates of between 2 percent and 2.4 percent per annum and an even more modest 1.4 percent-a-year employment growth. The growth, however, has not increased the real growth for middle American income owners and employment opportunities for the low income class.
Therefore most of these citizens support the Trump way of protectionism.
His significant tax cuts helped US companies to record earnings, pushing up share prices to record levels on a continuing basis.
As a result the dollar stays strong and keeps inflation low.
Although the Fed had increased US interest rates already two times this year it seems to be uncertain how many more increases there will be this year.
This gave the president a gap to interfere again.
Trump in no uncertain terms declared on Monday that he is “not thrilled” with Federal Reserve chairperson Jerome Powell for hiking interest rates.
This again is part of the Trump protectionism style. He wants at all costs to keep the middle and low income voter satisfied till the next election. As long as he can keep borrowing costs low and keep any global competitor at bay that may threaten their jobs, he will have big support.
In the meantime his actions may lead to one of the most severe US and global recessions in a year or so, as this type of isolation and irresponsible policies will undo all the successes of his predecessor and other global partners.
Chris Harmse is the chief economist of Rebalance Fund Managers.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT