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Trump’s one potentially great idea

By Anthony Element

Setting aside for a moment, the socially and morally reprehensible ideas Trump has come out with, the infrastructure comment in his acceptance speech actually might be a winner.

Trump has promised to bring jobs back to America by applying tariffs to Chinese imports. This is patently nonsensical. For example, around 95% of the items on Walmart shelves are made in China. Just imagine when all those redneck Trump voters in rural America go into their Walmart one day and discover that virtually every item in the store just went up by 45%.

Meanwhile, middle America suddenly finds that clothes, white goods, and many food items just increased in price by close to half.

That dog simply wont hunt.

Meanwhile, the Chinese govt – which can do it at the stroke of a pen – cancels the rights of major American companies to trade in China as a response.

US shareholders will just love that.

So, Trump’s tariff plan will alienate the entire US electorate in one go, while failing to create a single new job. Efficient, but hardly effective.

So what can Trump do to create the promised jobs, given that his proposed tariff plan is unworkable?

The American Institution of Engineers estimates that the cost of just making American bridges safe is around 1.7 Trillion USD.

Throwing money at infrastructure which has been ignored for decades is one of the quickest ways of creating jobs. At the same time, it will save lives.

Every year someone in America dies when a bridge collapses. We have no idea how many deaths result from the state of US roads, but it’s a large number.

Investment in massive infrastructure projects was the beating heart of the FDR’s New Deal that finally pulled America out of the Great Depression, so it has credibility.

Of course, the US Right have for years howled about how to pay for it. (Somehow they can find the money for wars that make no sense but can’t find the cash to fix their own infrastructure and to create domestic jobs, but that’s another story.)

The answer is to borrow and to print money. Because the USD is the only currency that can truly revalue, (because all other currencies are valued against the USD), America has much more leeway to print money than other countries do.)

Yes this will be inflationary, but a decade of printing money, (QE1 and 2) hardly moved the inflation needle, and a bit more inflation would actually be good for the US economy.

Added to which, well spent infrastructure dollars tend to increase productivity, thus enabling the nation to service the new debt. (Australia would benefit “bigly” from doing the same thing, but that’s yet another story.)

So, from the American standpoint, infrastructure investment on the national credit card is a sensible, well proven plan.

And the cream is that a healthy US economy inevitably increases the demand for Australian exports.

Alright then.

 

9 comments

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  1. Andreas Bimba

    Yes, to make all consumer items in the U.S. again would be counter productive. The proponents of totally free trade make the same tired old – it’s all or nothing argument.

    Totally free trade is a race to the bottom for the developed world and totally closed markets will lead to less consumer choice, higher costs and mostly stagnant industries.

    Like most things the optimal point is a matter of balance – moderate trade protection for just those industries deemed worth retaining or developing. 90% of Walmart’s rubbish would still be imported duty free. Highly automated manufacturers can survive in the developed world behind moderate tariffs, for example in the case of car manufacturing for Australia a tariff of 15% would suffice. With 100% importation of vehicles the dollar would probably depreciate by 5% leaving a consumer cost burden of say 10%. The employment, taxation, supply chain and technology benefits of having a car manufacturing industry provide a net overall benefit to all citizens in excess of that 10% cost increase.

    China practices protectionism on a major scale even with FTA nations. The only sensible game is ‘play to win’ like how trade is practiced by all of the East Asian nations and no China will not block all access to the Chinese market by U.S. corporations if Trump slaps on a few narrowly focused moderate tariffs. They will just see another nation that plays the trade game like they do.

    The U.S. has no more or no less leeway to fund government spending by ‘printing’ as any other country with its own sovereign currency. The MMT economists know very well that the U.S. government can spend considerably more than it currently does without this being inflationary because of the very large numbers of unemployed and underemployed people. Such spending will not be inflationary if current idle economic capacity is utilised. Tax increases are not required nor does the federal government need to borrow.

    I hope Trump can see beyond spending on roads and also invests in clean energy, public transport, fast trains, rail freight, affordable low energy housing and similar.

  2. Jason

    I remember looking at examples of clothes while studying business and even a tariff of 10% would be enough to remove the cost advantage of outsourcing once costs of transport etc are factored in. Tariffs are a powerful tool so will be interesting to see what he actually implements and how much Walmart power Walmart et al have with lobbying the GOP.

  3. Keitha Granville

    Perhaps he needs to have a look at the major supplier to Macy’s which his companies own, they are already in large part China. I don’t think those buyers , not even at the Walmart level, would be very pleased either.

  4. guest

    Infrastructure? By all means. You mean like the BER and the Pink Batts program? For how long? and at what cost?

    I often wonder how Oz or the USA or Europe could ever re-surface all their roads. Or build more bridges. Or clover-leaf fly-overs.

    We have seen massive destruction of houses in Oz over time for building roads.. The building of the Sydney Harbour Bridge is one example. The car rules OK? The painting of the Bridge goes on for ever? Or does it need to be replaced?

    I see where German car companies are aiming for the disbanding of the internal combustion engine by 2030.

    What was that idea about fast rail?

    And will all the unemployed be employed?

  5. Nato

    This is funny because I believe you sincerely consider such preposterous premonitions are plausible.

  6. Harquebus

    Another dreamer who thinks that even more currency creation and debt can solve real world problems.
    Trump’s goal of doubling growth has only confirmed his ignorance of the exponential function and guaranteed his failure.

  7. Jexpat

    I would happily pay 45% more for quality, domestially produced garden hoses and fittings that:

    A. didn’t leak; and

    B. lasted more than two years.

    Just sayin’

  8. Peter F

    @ Harquebus: You have to admit though, that the move towards greater growth does hasten the ultimate solution. Earth will give a little hiccup, and say: ” Interesting experiment while it lasted.”

  9. Harquebus

    Peter F
    Yes. I will admit that.
    Cheers.

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