Trump is the leading presidential candidate of the Republican Party, and he is campaigning under the slogan of make America great again. His campaign slogan is based on several extreme economic and social policies. The economic policies of a president are mainly macroeconomics policies that affect all the components of the country’s gross domestic product. His main economic policies touch on taxes, labor supply, investments, and international trade. He looks forward to cutting individual and cooperate taxes, increasing the volume of exports, decreasing imports and increasing private investment (Trump, 1).
The most popular and extreme economic policy that Trump proposes is deportation of immigrants. He is determined to deport all immigrants because he says they have taken the jobs available for Americans. These immigrants are mainly Mexicans and Africans. This economic policy affects the supply of labor in the country. Deporting them will reduce the labor supply. The labor supply curve shifts inwards; if the demand for labor remains unchanged, a new equilibrium is created where the equilibrium wage is high. Theoretically, Americans will have several jobs to choose from if immigrants are deported because labor supply in the country expected to be lower than the demand for labor. However, in the real labor market, this does not happen because of the following two reasons. First, many of the immigrants provide low skilled labor. These low skilled labor jobs are not the kind of jobs that many Americans are looking to get. Therefore, the economy might have available jobs that, but the level of unemployment may not change. Two, the demand for labor is likely to fall because of the fall in aggregate demand caused by deporting millions of people. There are many firms relying on the immigrants as the main market for their output. So this move can easily increase unemployment because the market for low-cost goods will fall and the firms may sack some workers who are citizens (Alan, 1).
Deporting illegal immigrants will reduce the demand for public utilities. Many illegal immigrants rely on the government to get some essential services because they cannot afford the ones offered by the private sector. The government spending on providing public goods like education and water may fall. Moreover, the government might save money spend on transfer payment. This happens if some deported immigrants have been relying on government stipends to make ends meet. The government will use this money to start other projects in the country. This is likely to spur development. However, the level of investment is likely to fall drastically due to decreased aggregate demand. Firms will lack a market for their products. They will be forced to reduce their level of production and avoid expansion because of lack of market for their output. Besides, the amount of revenue received out of illegal immigrants contribution to social security funds will fall. This affects the financing of the funds because many immigrants who contribute to the funds never get any benefit (Byron, 1).
The other popular economic policy in his campaign is increasing tariffs on imports from Mexico and China. According to his campaign team, increasing tariffs on goods from these countries will discourage people from purchasing them. The Americans goods will be more competitive in the market than the imports. Therefore, Americans firms will respond to this economic policy by increasing their production to feed the additional demand. The firms will need additional workers for the new investments. Besides, the tax revenue realizable from import duty will increase. However, this move has several negative economic consequences. The first one is that the demand for imports may not fall proportionately with the increased taxes. This is because demand for commodities is affected by several factors apart from price. For example, consumers may continue purchasing items from the preferred manufacturer even when the price of the goods rises. Thus, American will pay more for the imported goods. This will decrease their standards of living because they will not be able to purchase as many commodities as before. The second economic consequence is an increase in some transactions in the black markets. Many traders will use the black market to evade the punitive taxes. The increase in black market will require the government to increase border surveillance. Therefore, the total tax revenue will decrease, but the government spending on surveillance will increase (Alan, 1).
Increasing tariffs on imports will affect the market for American goods in the foreign market. It is likely that the trading partners will respond to an irrational increase in taxes by increasing tax on goods imported from America. The increase in taxes on American goods will make those goods quite expensive, and their demand will fall. The exporting firms will be forced to cut on their production and investment due to lack of market. The downscaling of production reduces the demand for jobs, and these create unemployment. The above arguments show that the cost cancels the benefits of increasing tariffs. It is probable that the cost of high tariffs outweighs the benefits. This economic policy can only bear fruits if America was only importing from China and Mexico without exporting any goods to the countries (Byron, 1).
The increase in tariffs for all imports will not spur production in the country because many of the imports made are in the form of raw materials. The increase tariffs will increase the cost of raw material purchase by firms. The firms will pass this cost to the consumers. Thus, Americans will pay for the high tariffs. He increase in the cost of raw materials in the economy may lead to cost-push inflation. (Hubbard, 29)
Donald proposes a tax cut for all Americans. His idea is aimed at increasing the disposable income of American taxes because taxes are paid on personal income. The increase in consumer disposable income will encourage households to spend more on goods and services produced. This increased spending by the households increases the aggregate demand. The increase in aggregate demand in the economy will spur production and expansion of investments. This will allow companies to hire more people due to increased demand for labor. The new employees will have more income, and they will, in turn, spend it and increase aggregate demand. Therefore, the tax cuts will not only increase the standards of living of Americans, but it will also help to create more jobs. The increase in employment will reduce reliance on government aid and dependency ratio. The overall benefit in the economy is likely to be quite high to the multiplier effect (Hubbard, 29).
Donald’s also proposes to reduce cooperate tax. The reduction of tax on firms will encourage firms to open more branches across the country. Moreover, foreign investors will prefer to invest in the country to enjoy the low taxes. Therefore, low cooperate taxes will increase investments. The increased number of firms will create jobs in the country, hence the level of unemployment will fall.
The explanation for the reduction on tax benefit shows extensive benefits. However, the budget deficit is likely to increase when tax revenue is decreased. This happens if the government does not cut its spending. This is a probable scenario because Donald does not provide any way to recover the fall in government revenue resulting from taxation.
The Impact of Increased National Debt
The government increases its spending during the recession, so as to increase aggregate demand. This increased spending is financed by the sale of government bonds, and borrowing from domestic and foreign financial institutions. The majority of the benefits of increased aggregate demand is explained in the previous paragraphs. They include an increase in employment opportunities in the level of investment. However, the positive impacts are not felt in the economy if the increased debt is made to replace the fall of income tax. The increase in national debt due to a decrease in tax revenue has several negative economic consequences (Hubbard, 29).
Internal borrowing may finance the increase in debt. The demand for borrowed capital in the economy increases while the supply may remain unchanged. This will lead to an increase in interest rate on mortgages and students loans. The increase of educational loans offered to students makes tertiary education less accessible. Many people will not be able to advance their skills, and the overall quality of labor will be negatively affected. Lack of Americans with the required skills will force firms to hire foreigners who may require high wages. This will push up the cost of production and make American products uncompetitive in foreign markets. Besides, mismatch of labor skills demanded and those available leads to increase in unemployment. The increase in mortgage interest rates will force families to either decrease their expenditure on other commodities so as to repay loans or be homeless. This will have a negative effect on American’s standard of living (Hubbard, 34).
The increase in interest rates affects the level of investment in the country. Their increase results to increased cost of obtaining business loans. The private investors will be unable to invest in projects whose margin of return is low because of the high cost of credit. Moreover, financial institutions will prefer to offer loans to the government because the credit risk of government is lower than that of private investors. Thus, the overall investment in the economy will fall drastically due to the inverse relationship between interest rate and investment. The decrease in investment will reduce the variety of goods available to consumers and employment opportunities.
The government can avoid the negative effects by borrowing from the international financial institution. This move will avoid crowding out of private investment. Besides, the interest rates on student loans and mortgages will not increase (Hubbard, 22).
The last social, economic policy that Trump proposes is decreasing the cost of keeping American allies secure. The decrease in this spending may have economic benefits. This is because such expenditure may not have any positive economic benefit except ensuring business runs smoothly. If Trump can come up with ways of decreasing expenditure in security without compromising the running of the business and general security of Americans he will save millions of money. This money can be invested in development projects that will create more employment opportunities for Americans.
Conclusion
Deporting illegal immigrants will hurt the economy because of a decrease in aggregate demand and a decrease in the supply of cheap labor for low-skilled jobs. The increase in tariffs on imports will not increase investments and create many job opportunities. This economic proposal will only have a negative impact on production because many of the country’s imports are raw materials and increasing their taxes will increase the cost of production. Lastly, decreasing taxes without extremely reducing government spending will increase the budget deficit. The increase in deficit may force the government to borrow from domestic financial institutions, hence crowding out private investment.
References
Hubbard, R. Glenn. Macro Economics. Frenchs Forest, N.S.W.: Pearson Prentice Hall, 2009.
Print.
Alan Blinder. "Trumpism, the Economic Wrecking Ball." WSJ. Web. 05 Apr. 2016.
<http://www.wsj.com/articles/trumpism-the-economic-wrecking-ball-1458601778>.
Trump, Donald. "Tax Reform." Tax Reform. 2016. Web. 05 Apr. 2016.
<https://www.donaldjtrump.com/positions/tax-reform>.
Byron Tau “Donald Trump Policy Plans Raise Concerns, Critics Argue”.2015. Web. 05 Apr.
2016.<http://www.wsj.com/articles/donald-trump-policy-plans-raise-concerns-critics-argue-1442791682>
