If Trump does plan to bring back jobs from China, Vietnam and India to US, he will have to reduce American wages by about 80-85% to ensure the same level of competitiveness. Is he willing to do that?

Steven Philip Warner | February 2017 Issue | The Dollar Business

Outcomes of the immediate last General Elections in three nations that matter most to an Indian exporter-importer are perhaps the most obvious evidences of how paradoxical the current situation is in this globalised market. Three nations: America, China and of course, India. While India saw its single-most popular nominee in many decades chosen to the nation’s corner office, and China (and its citizenry) was given no choice to decide on who was their Mr. Favourite, America saw its least-loved campaigner take the oath of office! [Wollah!]

Even on Presidential inauguration day, media channels around the world used words like “unbelievable”, “surprising”, “shocking”, “untrue”, and the likes, to get a grip of America, The White House and the world to be. And that’s purely because the man in charge of arugably the most influential nation in the world still – we say that because of how capable US is to finger-and-hand-twist power bodies like the Bretton Woods twins, NATO, UN, etc. – has a habit of saying whatever he feels makes that “moment” great with little respect or consideration of the ramifications of his eccentric vocal expressions. And when every time he talks about “how he forced those who hated him to concede”, we end up imagining how he may just force devastating changes on the natural pattern of trade and policy relations for not just America but the whole world. His ever-defiant ego is one representation of an independent thinking and unilateralist, who thinks his way, likes doing things his way, cares least about traditions, and has the audacity of announcing that values are for suckers and Russia a friend in public!

Historically, American presidents have been about “light-hearted caricatures”. Trump is all about “serious jokes”! [I remember one Jimmy Fallon show in the third week of January where he jests that “as per a recent survey, 70% of respondents said that the person they’d like to see at Trump’s inauguration function was “A New President”!] Historically, American presidents have been about experience in politics. He has been one about experience with controversies. Historically, American presidents have been about sober tongue and silence post-electoral college results. He has been one about taking his tweet count to newer highs. Historically, American presidents have been less about impulse (unlike the current class of Russia’s Putin and Turkey’s Erdogran). This one is about a constellation of ‘off-the-cuff’ impulse revolving around a heck of a gravitational ego. Historically, American Presidents are about playing “caring global daddies”. He’s not a world policeman – he’ll carpet bomb at will, mind you, but he’ll not sing lullabies to other sobbing Head of States. Historically, American Presidents are almost sure of what they say. He speaks against immigrants and H-1B Visas, while his very better Slovenian-born half is an immigrant herself! Somehow, this less popular, outlandish candidate becoming president has proven Darwin wrong. (Organisms evolve; yes?) The confusion however is – who’s the subject of defiance to Darwin’s Theory here – Trump or America’s voters? Or maybe most Americans decided that as Trump enjoyed shooting bizarre remarks during his campaign tours, they had a right to finger the wrong button on voting machines, hoping everyone else would choose the politically-logical candidate. Problem is – they all thought alike! So it happened. Trump won. America was surprised. And the world was shocked.

And while Republicans and his supporters hope that he will keep his promise to build a wall, other nations who have big stakes in foreign trade (and their exporters and importers) still hope that he'll keep his promise, declare the election results “rigged by illegal immigrants” and step down!

Speaking of promise, some indication of how Trump becoming president could impact world trade and policy is obvious from his tweets. Like I said before, historically, American presidents have been about “silence post-results”. He has just made Twitter his hometown. But what percentage of those 140 characters emanated from his left-brain is questionable.

A quick analysis will give you a fair idea of how going forward, this Statesman will influence America’s road to greater or lesser global trade integration and impact millions of exporters across tens of other exporting nations that thrive on supplying manufacturing produce and rendering services to the world. Let us analyse some of his theories (of Trump’onomics) supported by 'his' tweets and understand what they mean when put under two scanners: Trump’onomics and Global Economics.

Trump’onomic theory #1: The world is celebrating his victory.
Related tweet: “The world was gloomy before I won - there was no hope. Now the market is up nearly 10%...”
Analysis as per logical economics: For Trump, perhaps world market means just the American market. American stock exchanges behaved like reckless teenagers on hearing that he’s won the elections, but the fact that stock markets in the world’s top two populous nations (China and India) have fallen since Nov 8, 2016 (till Jan 20, 2017; including BSE, NSE, Shanghai Stock Exchange and the Hang Seng) proves how sound his theory of global markets is! (Yes, since Nov 8, the Russian index MICEX has appreciated by 10% to 2,200 points; is Russia the new world for Trump?)

Trump’onomic theory #2: Building a wall to celebrate a border is a symbol of a defiant and great neighbour, one which your neighbour will want and reciprocate by paying for it willingly!
Related tweets: “We must build a great wall between Mexico and the United States! Mexico will pay for the wall!”
Analysis as per logical economics: What inspires Trump to build the wall is a mystery. Five issues come to mind. First, Trump’s campaign rhetoric about illegal immigration and insistence that the US needs to build a border wall is hard to understand if one goes by the falling number of illegal immigrant apprehensions of Mexican nationals at US borders in the past seven years (the count has fallen by 62% since 2009, to 192,969 in CY2016) and the reduced count of illegal immigrants since its 2007 peak. Second, forgive Trump if he is drawing inspiration from The Great Wall of China, but can someone please tell him that the Wall cannot be actually seen from the moon? There are three more facts that don’t make The Great Wall of China a fitting comparison or inspiration. One, the Great Wall is within China, not on its border. Two, China paid for its own wall over centuries. And three, the Wall was meant to stop invaders, during the BC era when passports and Visas were non-existent. Talking about making Mexico pay for it – the nation’s political leaders, including both its current and former presidents, have already confessed that it is far too short on funds or willingness to do so. Going by Mexico’s economic situation, the only way in which Trump can force money out of his neighbour is by levying a double digit tax on remittances from Mexicans working in US. But if Trump were to push any federal tax on remittances down the US Congress’ throat, it would have to be applied to all foreigners in US; taxing just Mexicans would be discriminatory. And mind you, if Mexico was to fund this plan of Trump, it will have to bow down to other security measures that Trump has on mind. How about funding toilet papers for US border patrol agents next?

Trump’onomic theory #3: Reduce outsourcing to 0%.
Related tweets: “Make in USA or pay big border tax! The Democrats are most angry that so many Obama Democrats voted for me. With all of the jobs I am bringing back to our Nation, that number will only get higher. Car companies and others, if they want to do business in our country, have to start making things here again. China has been taking out massive amounts of money from US in a totally one-sided trade. We will bring back our jobs.”
Analysis as per logical economics: Alright! Before this objective of Trump makes Obama look villainous, here’s the real story. When Obama took over, America’s unemployment rate was 7.8% (Jan 2009). When he left, it was down to 4.7% (Dec 2016). So, Obama has silently reduced unemployment rate to almost half. With such silence can Trump do too. But he won’t! That’s not his style because he’s just about learning to become a political figure! Back to Trump’s objective. The millions of jobs he wants to bring back to America was lost decades ago. And since then, more than borders, there is a new virus that’s doing the damage which he probably needs to be educated on – technology! What Trump intends to do is bring back 7 million jobs lost since the early 1980s back to America! Good morning Mr. President: FYI, all jobs aren’t being replaced by cheaper ones in China or Vietnam or India. Microchips, AI and smarter softwares have arrived. And therefore technically, you can’t bring back all the jobs lost! Confirms Wharton management professor Ann Harrison who writes in a Wharton Public Policy paper that, “If you try to understand how so many jobs have disappeared, the answer that you come up with over and over again in the data is that it’s not trade that caused that — it’s primarily technology. 80% of lost jobs were not replaced by workers in China, but by machines and automation.”

Now I’ll tell you what will happen. If Trump forces Apple to shift 100% of its iPhone and GM, Ford and Chrysler to shift 100% of their car-making assembly lines to US, it will actually force the non-American consumer to opt for cheaper alternatives to the American brands, which in turn will mean that first, the jobs went and now the company and brand themselves will! Minus Apple, the likes of Samsungs and LGs will roll in wealth. Minus GM, Rolls Royce and Ford, the Audis, Suzukis and BMWs will. Yes, if Trump's goal is to bring back manufacturing jobs, he can. But they won't be the same jobs US lost decades back. Instead of using the rod, he can incentivise and make American manufacturing plants look appealing for even Asian firms! And what if I told you that the very belief that America has lost jobs created by manufacturing is one wrongly founded? As per an Economic Policy Institute (EPI) research paper, US' manufacturing sector supported approximately 17.1 million indirect jobs in US, in addition to the 12 million persons directly employed in manufacturing, for a total of 29.1 million jobs – or more than 21% of total US employment in 2013. Here’s my final question on this theory: If Trump does plan to bring back jobs from China, Vietnam and India to US, he will have to reduce American wages by 80% to ensure the same level of competitiveness. Is he willing to do that?

Trump’onomic theory #4: Kill FTAs like NAFTA and those in the making like TPP.
Related tweet: “NAFTA is the worst trade deal... and now you want to approve Trans-Pacific Partnership. I will renegotiate NAFTA. If I can’t make a great deal, we’re going to tear it up. The Trans-Pacific Partnership is an attack on America's business.”
Analysis as per logical economics: There is a good reason to believe that Trump’s crusade against TPPs was largely driven by the Clinton factor and bad economics. It was Bill Clinton who signed NAFTA, an FTA that has not altogether been a sour deal for US. If trade deficit is all that Trump want to talk about then which trade treaty will he abuse in the name of blaming rising American deficit with China? As per the US Chamber of Commerce, six million US jobs depend on American trade with Mexico, a flow that has been greatly facilitated by NAFTA, which has helped eliminate costly tariff and non-tariff barriers. As per researches by the Wilson Center, 25% and 40% of the value of goods that are imported from Canada and Mexico into US respectively, are actually “Made in USA”!  In fact, Wharton management professor Mauro Guillen, has been open about the benefits that NAFTA has had on US. He states in a Wharton paper that, “We have gained jobs thanks to NAFTA, jobs that were in Europe and Japan. In the 1990s, after NAFTA came into effect, companies like Toyota, Nissan, Mercedes and BMW established plants in Alabama, South Carolina, Tennessee and other states, for instance. Their suppliers also came.” And talking about TPP, it is true that much of the forecasted failures of this FTA to benefit America is based on the assumption that this deal is “altogether too foolish to make” – little early to say that given this FTA has no China still and actually hasn’t seen the light of the day! And what economics teaches us is that if US leaves TPP, China will benefit the most, as NYU professor Ghemawat concludes in his HBR article, ‘If Trump Abandons the TPP, China Will Be the Biggest Winner’. [But, since Trump says TPP is bad for America, he must be right. Oh! Actually, he is. Because American voters think he is.]

Trump’onomic theory #5: Global warming is non-sense. It’s Chinese propaganda. Environmental friendly products have no future. Stop manufacturing them.
Related tweet: “The concept of global warming was created by and for the Chinese in order to make US manufacturing non-competitive.”
Analysis as per logical economics: What does America do when it hears a Presidential candidate campaign against science, logic, experience, vaccination (you read it right), laboratory experiments and all things real? It gives him The White House! Economics and world trade have supported well-proven cases of scientists around the world – so bio-fuels, green technology, solar panels, etc., are increasingly becoming big business in foreign trade. But, if you are a Trump supporter, stop right there. Go back to the Hummers and side with Rex Tillerson!

This cover story deals with Trump and the impact his anti-outsourcing act will have on H-1B visas and India’s outsourcing industry. Does Trump even realise that given the differential between white collar salaries in US and India, even a 100% outsourcing tax will have practically little impact on India’s IT giants' relocation strategy. Given that salary differences between India and US across most white collar jobs areas range roughly between 300% to 500%, the only difference such a tax will make to Indian firms is their bottomlines. And if stricter rules on outsourcing and visas hit Indian companies, they will hold back from investing in US.

Trump’s take on the Turkey-Russia-US faction, at war Syria & ISIS, a hurt Israel, a sanction-free Iran, his new friend Putin, EU’s slim-down season, cursed Big Oil, tax reductions, job-gobbling monster of a China, and other such issues are all significant to decide the future of America's and world's foreign trade.

Trump’onomics makes little sense in most parts. It was probably thought of more as a campaign agenda and less to drive forward America’s foreign relations and trade with the world. Many claim that Trump will destroy relations that American importers and exporters have with their counterparts, especially with those across emerging nations like India, China, etc. His supporters opine that he will 'Make America Great Again'. Trump’onomics isn’t real. Economics is. Promising to bring back jobs and quarelling with neighbours isn’t going to make the impending inflation in America look prettier or Trump look younger.

Translation: US will lose if Trump sticks to Trump’onomics for very long. Remember, Americans are less than 5% of the world’s population. Someone tell Trump that. [Unless of course, his campaign slogan was meant to read, 'Make America primitive again'!]