Mr Trump's way

Protectionism will hurt Americans, too

Chief executives of Indian information technology (IT) and pharmaceutical companies won’t be the only ones scrambling to reorient their strategies after US President Donald Trump’s inauguration speech that dissed the four former presidents with whom he shared the podium and painted a grossly inaccurate picture of America. From China to Europe, the implications of “America First” and the declaration that “protectionism will lead to greater prosperity and strength” – two key takeaways from the former realtor and reality TV star’s opening address – have sent out the unmistakable message that the world’s only superpower and largest consumer market would be reverting to the kind of isolationism last seen in America in the 1930s. In stating these views, Mr Trump may have belied the hopes of those who thought that accession to office would temper the more extreme proclivities of his crudely divisive campaign, but the campaign speech had a virtue of sorts in its blunt reiteration of intent. That the only certainty going forward is uncertainty was underlined by the cautious movements in the financial markets in the weaker dollar and falling yields on US treasuries.

The irony of “Trumponomics” is that it is likely to hurt the dwindling minority of white working class Americans that form the core of his support base. Consider his first two muscular executive decisions. The first, to scrap the Barack Obama administration’s fee cut on mortgage premiums, will impact mostly low-income first-time buyers. Far more serious is the repeal of the Affordable Care Act, Mr Obama’s signature achievement, creating turmoil in the insurance industry and for millions of Americans – many of them Mr Trump’s supporters – who benefited from it. In this, Mr Trump has ignored the advice of his own Republican party to wait for a replacement Bill to minimise suffering for consumers. As for job creation, Mr Trump’s feted moves to convince Carrier Aircon and Ford to relocate manufacturing from Mexico are illusory. The former relied on a generous tax break, which is surely unsustainable, and heavy investment in automation in its US factory. Ford made a virtue out of a necessity by activating a December 2015 decision to roll back its new small car factory in Mexico and refocus on its US plant making SUVs, an industry segment that is expanding again owing to falling oil prices. 

Mr Trump’s grand infrastructure plans are no less misleading since they relied on tax breaks for such companies rather than via federal spending. Whether they will encourage these companies to spend on roads, bridges, airports, railways and tunnels is an open question. Mr Trump is suspicious of free trade: Sure, higher tariff walls may hurt countries such as China and India, but rising prices as a result will hurt lower- and middle-income American consumers harder. Tax breaks for the rich are unlikely to stimulate demand, since studies have shown that the top 1 per cent tend to save; it is the poor who spend when their incomes grow. The Indian IT industry made US corporations cost competitive, a fact every president from Bill Clinton onwards understood well; Indian pharma was the underpinning of affordable medicine for poor Americans. The world would hope that one of the best American presidencies in recent times is not followed by one of the worst.