President Trump Appears to Not Understand Today's Global Economy

If you took a look at Trump's policies and the way he conducts himself then you would never guess that Trump graduated from the University of Pennsylvania with a bachelor degree in economics. For the most part, Trump's enacted policies and proposed policies are bad for the economy. And if one takes a close look at his policies and rhetoric then you can see that their are many things that Trump does not understand about the world economy and modern day economics.

International Trade

President Trump has recently placed economic sanctions on a slew of countries. Trump has said over and over again that the United States is always on the losing end of trade deals. To make his point he often cites the trade deficit that the US has with a few countries while ignoring the trade surpluses that the US has with other countries.

Trump’s approach to negotiating international trade deals has also been backfiring. For example, recently Trump placed economic sanctions on the European Union. The European Union responded by placing economic sanctions on the United States, including a 31% tariff on the iconic American motorcycle company Harley Davidson. This forced Harley Davidson to announce that they will be moving factories outside of the United States to lower production costs and remain competitive in the growing European automotive market. 

Coal and Other Dying Industries

From examining President Trump's rhetoric it appears that he thinks he can save dying industries by imposing tariffs and by speaking about companies on social media. Well he can "save" dying industries with tariffs, but this is terrible for the economy. Not only do tariffs lead to other countries to placing tariffs on the US, but it also decreases efficiency in the economy and forces Americans to pay more for goods produced in America. Basically, when American industries are protected by tariffs it leads to American consumers the US is subsidizing protected industries.

This round about way of subsidizing industries, although harmful, is nothing new. Currently, the US has tariffs on sugar imports which causes sugar to cost 6-cents more per pound than it would without tariffs. While this sugar tariff protects sugar producing farmers, Americans are paying way more for sugar than they should (around million USD per year). Instead of protecting a dying industry President Trump and other politicians should come up with plans to embrace free trade and retrain Americans that are losing their jobs to outsourcing. 

Monetary Policy

President Trump has made many errors and incorrect policy decisions that have seriously impacted the US' monetary policy and has forced the Federal Reserve to take action and fix Trump's mistakes. One such mistake was after Secretary of Treasury Steven Mnuchin explained that he wants to see a weak dollar, President Trump said in an interview with CNBC that the Mnuchin's comments were out of context. Trump then went on to explain that the US dollar is going to get stronger and stronger. This statement by Trump undermined Mnuchin's strategy to put the US in a better position for international trade opportunities. In fact, after Trump said, "I think [Mnuchin's remarks] were taken out of context because I read the exact statement," Mnuchin responded by telling reporters, "Obviously a weaker dollar is good for us as it relates to trade and opportunities."

Another policy mistake Trump made was passing a bill to decrease taxes when the economy is already growing at a fair price. Due to Trump's decision to lower taxes the Federal Reserve had to increase interest rates in order to stave off harmful increases in inflation that would have resulted from the tax bill.

Featured Image Source: Currency Fair