Principle investments-disc 1
Evaluation of Trump administration’ key economic policy
Trump administration policy of lowering corporate tax from 35% to 21% is expected to grow tax revenues by stimulating the economy to grow at a rate of 3% per annum. Pro-Trump analysts argue that the lower tax rate will reduce the current tax burden on businesses and also act as an incentive for repatriation of profits held by companies in overseas accounts. This will enable businesses to increase spending on capital goods such as plant and equipment (Minter, 2018). Investment in capital goods is expected to increase production which will translate to a higher growth in the gross domestic product (GDP) of the country. The projected growth in GDP is expected to be more than enough to offset reduction in tax revenues. Trump’s administration hopes to increase spending on the military and infrastructure with money saved by eliminating waste in federal spending and also increase in tax revenues from the projected growth in the economy (Minter, 2018). The tax cut is also expected to stop relocation of corporate headquarters and outsourcing of manufacturing to overseas destinations leading to loss of jobs in the USA. However, anti-Trump economists argue that this move will increase the national debt and not reduce it. The stock, bond market is expected to rebound with renewed growth in its constituent companies. As those companies record more profits due to the tax cut they will in turn increase dividend pay outs which will lift share prices and increase the market’s activity (Minter, 2018).
The Trump administration is taking a protectionist stance as it intends to impose a 35% tax on imported cars, renegotiate or abandon the North American Free Trade Agreement (NAFTA), impose a tax of 45% on Chinese imports and withdraw from the Trans-Pacific Partnership trade deal. The Trump administration hopes that this will make US manufacturers more competitive as it will protect them from the seemingly unfair competition from overseas companies (Khan, 2017). This is expected to stop the relocation of US based companies to cheaper destinations overseas. However, analysts argue that this may result in retaliation from other countries that the USA trades with (Minter, 2018). Retaliation would reduce the USA’s exports and increase prices of imports which would affect the economy negatively. China would also benefit from this policy by increasing trade with former trade partners of the USA and escalate its isolation from the world trade arena (Donnan, Jopson & Fleming, 2016).
References
Minter, S. (2018). Has US manufacturing been unleashed? Industry Week, Retrieved from
https://search.proquest.com/docview/1993619841?accountid=45049
Donnan, S., Jopson, B., & Fleming, S. (2016). Trump pledges ‘tax revolution’ for US
business. FT.Com, Retrieved from https://search.proquest.com/docview/1817459421?accountid=45049
Khan, M. (2017). Trump’s protectionist policies threaten rising foreign investment, warns
- FT.Com, Retrieved from https://search.proquest.com/docview/1873912541?accountid=45049