19 October 2017

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TRUMP’S BURDEN

The new US President to face truly difficult tasks

Author:

01.01.2017

Donald Trump’s victory remains one of the main topics of discussions in world politics. After all, despite all skepticism in forecasts, the United States is the only global superpower, which means the presidential elections had to be a universal event.

Now that the election is over, we can further analyze the factors that led Trump to the top of American political system, as well as summarize the predictions about the course of the new White House administration. We should do so with internal political and economic expectations, since it were the promises to solve serious national problems that underpinned Trump’s crushing victory.

 

Heart Transplant Is Required?

An American investor, banker, former senior official, globalist, dean of one of the most famous universities in the country, the Massachusetts Institute of Technology, Professor Jeffrey Garten explains the current situation in the country as follows: “Once blinded by its brilliant way of life and wealth, the United States now risk being on a par with ‘second class’ countries. Our dependence on capital and technology of other countries is gradually increasing. Ten per cent of the population is on the verge of starvation. Every third child up to 17 years needs government assistance. Thirty-five million Americans have no health insurance. Every 25 minutes someone is murdered in the country. The budget deficit and public debt are soaring. The education level falls, physical component of society is crumbling, our technological infrastructure wears out quickly. Our banks are in disarray, spreading cynicism and political polarization, the national government is weakening.”

Another well-known expert on macroeconomics from the University of California, Brad DeLong, talks about the US economy with sadness, which gradually turns into the nostalgia of the past: “The American capitalism needs a heart transplant. It is necessary to eliminate financial speculation, which has become the lifeblood of American capitalism and replace it with real capitalists able to take on the important function of the revival of the American industry. The weak point of America is the absence of capitalists, old-style major investors, who founded their companies to receive personal benefits and invent new technologies. America has already lost such large industrialists.”

It is not surprising that the economic issues of the autumn of 2016 is the main problem that worries American voters: according to Pew Research Center, 84% of the voters believe that this cluster of issues is “very important”. This demonstrates that the financial situation of ordinary American voters during the presidency of Barack Obama has failed to reach the pre-crisis level. According to data published by the US Census Bureau in September, despite a 5.2% increase in the average income of households in 2015 (up to $56.52 thousand per year), this figure has not yet reached the level of 2007 ($57.42 thousand). The US Census Bureau also reports that approximately 43 million Americans live below the poverty line.

Talking about his economic program, Trump has tried to convince the American voters that their financial situation would improve. The most radical reforms are expected in the tax system. Trump wants to abolish the inheritance tax, to introduce tax deductions for childcare services, to reduce maximum tax rate on individual incomes. In fact, reduction of tax burden will affect all segments of the population. The greater the income, the more significant will be the reduction.

 

Trade War Risks

Trump also promised to revise the existing US trade agreements, including the North American Free Trade Agreement (NAFTA) with Canada and Mexico, and to introduce a 45% tariff on all imports from China. If implemented, such a policy of trade barriers will violate the US obligations in the World Trade Organization (WTO), and can provoke a large-scale “trade war” with China. “Probably, the biggest global economic risk from Trump’s victory has to do with relations with China and trade issues”, twitted the Chief Economist of the Economist Intelligence Unit (EIU) Simon Baptist. Trading partners of the United States can respond to prohibitive Trump tariffs with similar measures that “will take the US economy back into recession and cost Americans millions of jobs,” say the economists of the Washington-based Peterson Institute for International Economics. According to Eurasia Group, it is unlikely that the Trump administration ratifies the Trans-Pacific Partnership (TPP) agreement between 12 countries. In this case, China will play the leading role in the establishment of trade rules in the Asia-Pacific region, warn the experts of the Peterson Institute.

 

The American Lifesyle. Fading ‘happiness’?

According to Western economists, the financial capital has firmly rooted in the American economy far more than would have been enough and has become the basis for national income.

The more the United States withdraw from real industrial economy, the more are they faced with unemployment and social problems. The American middle class, which had better life standards than the same class in other countries, is gradually losing “happy days” and rolls down to a lower level. The irregular and unorganized social conflicts apply to all sectors of the American society.

The crime rate has been steadily increasing over the previous years. Mass attacks occur in the country almost every day. According to CNN, more than 400 thousand people have been killed in 2003-2015 with firearms. Spending on litigations exceed spending on education and health care several times. In comparison with other countries, the United States has become ‘a country of prisoners’. In his interview with The New York Times, Forensics Specialist, Andrew Malcolm, says: “The new round of the arms race began in the United States. It is not a race with another country, but between American criminals and law enforcement agencies. It is not a race of small caliber guns, but about semi-automatic type of weapons.”

Despite the continued increase in the number of foreigners studying in American high schools and universities, the proportion of American nationals, who quit high schools, equals 25%. The unemployment rate among youth with insufficient education in big cities reaches 50%. This indicator is even higher among the blacks and Hispanics. All this data comes from American sources.

 

Increasing Income Differences

It should be noted that during his two presidential terms in office, Barack Obama has not only managed to overcome the worst economic crisis since the Second World War, but he has contributed to its steady growth. According to preliminary data of the US Bureau of Economic Analysis under the US Commerce Department, the national economic growth during the third quarter of 2016 amounted to 2.9% against the forecast 2.5%, which was the most significant rise in GDP over the past two years.

However, the historical problem of the United States, namely the issue of inequality in income distribution is growing. Thus, if the American nationals with the lowest income (20% of the population) accounted for 5.4% of the total national income in the 70s, today this figure fell to 3.9%. At the same time, the share of the richest (also 20% of the population) in the national income has increased from 41.5% to 48%.

According to the US researchers, about 35 million American nationals have lost their jobs in the 1970-1980's as a result of the closure of American plants and the relocation of production to overseas countries. Although in later years the administrations of Reagan, Clinton and the Bushes claimed that they managed to provide millions of people with jobs, most of these jobs are confined to low-paying positions in the service sector.

In general, the ideologues of globalization have promised to provide the employees of industrial sector with better-paid and “clean” jobs in the high-tech sector of the economy, which would develop in the “information age.” However, only 3% of the 674 thousand employees, who lost their jobs due to the closure of plants and factories in New England, could be employed in high-tech.

The President-elect Trump has also recognized this in his famous “Gettysburg Address”: “Nearly one in four Americans in their prime earning years isn’t even working. One in five households have no one with a job. 45 million Americans are on food stamps and 47 million are living in poverty. We have failed our inner cities and in so doing have failed our African-American and Hispanic communities… An economic plan designed to grow the economy 4% per year and create at least 25 million new jobs through massive tax reduction and simplification, in combination with trade reform, regulatory relief, and lifting the restrictions on American energy… We need jobs!.. Our good jobs (experts, R +) have really left us. The largest tax reductions are for the middle class, who have been forgotten. The middle-class with family of two children will get basically approximately a 35% tax cut and that’s what they can use and that money will go back into the economy… The business rate will be lowered from 35% to 15% and the trillions of dollars of American corporate money overseas can now be brought back at a 10% rate. It’s stuck. We can’t bring it back - $2.5 to $5 trillion. Companies can’t get it back into the country. Some companies are actually leaving not only because taxes are so high but because they can’t get their money. And they are actually leaving to get their money. We are going to simplify that. We’re going to have them bring the money back into our country and use the money and spend the money on building our country.”

 

To avoid the fate of Rome

The Founding Fathers of the United States often compared their country with the Roman Empire. Even the current capital Washington was initially called Rome, and one of the arms of the Potomac River was called Tiber in honour of the Tiber River in Rome. Like the Eternal City, Washington stands on seven hills. A growing number of specialists compare the modern United States with the Roman Empire at its decline, because one of the main reasons leading to the fall of Rome was continuing warfare and enormous expenditures that had rapidly depleted the treasury, suffocating taxes, inflation, and as a consequence, the increasing gap between the rich and poor. However, the collapse of the US is not good even for traditional rivals of the country. This would lead to a catastrophe on a planetary scale. At the same time, one should not forget that the US is suffering from chronic problems, and the Trump administration will have to try hard to avoid the sad fate of the Roman Empire for his country.



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