Can Trump win it for USA?

Trumponomics is mediaeval and grueling at the global stage; but will it be able to derive the intended benefits for USA? By closing the trade doors Trump’s administration expects to reduce the trade deficits. Can weakening a foreign currency be a full-proof solution to manage trade balance?

The answer is a straight NO. Basic trade theories can be used to explain why Trumponomics will fail. USA lacks the capability (basic capability to produce most of the manufacturing goods at a cheaper rate than Vietnam or China or Sri Lanka) to manage its trade flows. Trump’s authority has primarily targeted to reduce trade flows with China; even if this trade war is won USA cannot stop importing from other countries. So, the inherent problem has less to do with imposing tariffs or non-tariff barriers, rather it is largely the problem of efficiency.

Trade wars with China and other emerging countries can be counter-productive as there is a chance of retaliation. These balancing and rebalancing will take time (J-curve effect). So, instead of garnering trade surplus USA may end up with temporary trade deficits. Big USA based MNCs have intra-company trades in bulk amount. So, technically speaking it will be difficult to manage the trade war as well.

Labor wage rate is way high in developed countries like USA. So, these countries can never win the trade wars in the labor-intensive industries. But with time, service and soft-skill driven industries are becoming the bigger parts in the current account. Trump administration’s hope should stick to that side only.