With the first business day of Trump’s presidency, we are seeing two trends which will be countering each other. There still aren’t complete details on the new policies, but the trends are becoming clearer. The trends are decreasing regulations and increasing trade barriers. The trade barriers increasing is a negative on global growth. The U.S. is about to exit the Trans Pacific Partnership and renegotiate NAFTA. Democratic Senators are getting ready to introduce legislation for Trump to sign for the U.S. to leave TPP. Trump is about to sign an executive order to get America out of NAFTA. There will be a major boarder tax put in place for firms trying to outsource production and sell goods in America.
Cutting regulations will be a boon for American business. Trump stated he wants to cut 75% of regulations because he listened to what business leaders told him. Regulations inhibit business activity because they create uncertainty. When the government makes laws which ignore practicality, businesses don’t know how to operate legally, so they simply don’t expand to be conservative. It’s better to be safe than face massive fines for unknowingly breaking an ambiguous law.
The decisions on trade are still uncertain, but we will be getting more information in the next few weeks. Technically, leaving the TPP and NAFTA don’t have to be bad for trade because they can be replaced with better deals which still allow for free trade. The two agreements have separate issues which have different consequences. Because the TPP was just initiated, we don’t have much information to go on about how the U.S.’s leave from it will affect trade. When the U.S. leaves TPP, Trump plans to simultaneously start negotiating new deals with each nation. This can lead to freer trade if the negotiations go well. The two countries Trump has singled out are China and Mexico, so with TPP ending, China will be the country I am most focused on. There’s high political risk for China because it will be changing some of its top leaders in the communist government this fall.
