Originally posted at Forbes, January 2017
Last week I wrote a column entitled Stupid Economics in which I laid out the potentially enormous economic costs of Trump’s proposed international trade policies. These policies include, we’ve now learned, imposing a 20 percent tariff on all imports from Mexico. Trump has also indicated he wants to impose a 45 percent tariff on imports to the U.S. of products made by U.S. companies in Mexico. Presumably, he has the same policy in mind for imports from China, which he has labelled another stealer of U.S. jobs as well as a currency manipulator.
What we’ve learned from Trump is that he is good to his economic delusions. If left to his own devices, Trump could, over time, leave our country with few trading partners and, in the process, endanger 40 million U.S. jobs.
Not content with insulting the Mexican President, who cancelled his state visit to the United States, Trump has now, based on trumped-up security threats, insulted the global Muslim community. That’s 1.6 billion people — one quarter of the world’s population. Specifically, he’s just imposed a 3-month ban on anyone seeking to enter our country from 7 almost exclusively Muslim countries. He’s also banned immigration of all refugees for four months and indefinitely banned all Syrian refugees.
We have not, by the way, experienced any terrorist attacks by refugees. We’ve also experienced far more terrorist attacks in the last decade from U.S. citizens than from visitors or immigrants to our country. Trump, arguably, has raised the domestic terrorist threat more than he’s reduced the foreign terrorist threat.
In effectively singling out Muslims, Trump has not only infuriated all Americans who understand that respect for religious differences and allegiance to equal rights is what our country is all about. He has also further inflamed anti-American sentiment throughout the Muslim world as well as in countries that share our core values. Indeed, as I write, the British Parliament is debating banning Trump from visiting the United Kingdom.
In the last 48-hours, we’ve also learned that the White House brainiacs are considering requesting divulgence of the social media usage of all foreigners seeking entry into the U.S. Even suggesting such an absurd policy will, no doubt, produce a chill in the spines of any prospective business or tourist traveler to our country.
These incendiary moves could rapidly blow up in Trump’s and our economy’s face. Consider, for example, a decision by Muslim countries, from Indonesia to Malaysia to Saudi Arabia to Egypt to Morocco, to ban entry by Americans for the duration of America’s Muslim ban. Consider, for example, a worldwide social-media-driven decision by people around the world to forego travel to the U.S. until the Muslim travel ban is lifted and the U.S. again accepts its responsibility to take in a reasonable number of Syrian refugees. Consider, for example, a decision by the Mexican government to ban all exports to the U.S. for even a single month. Consider, for example, a decision by other Central American as well as South American and Caribbean nations to join Mexico in a one-month export boycott. Consider a decision by China to also ban exports for just a month to the U.S.
These reactions may sound self defeating, and, thus, irrational. But Trump is now deeply hated across the planet although he’s been in office for only 10 days. If they occur, the economic costs will be enormous.
The foreign trade reaction I’m warning about may have already started. Today’s NY Times carries this quote from Jeroen Dijsselbloem, who heads a committee of Eurozone finance ministers.
“We’ve always said that America is our best friend. If that’s no longer the case, if that’s what we need to understand from Donald Trump, then of course Europe will look for new friends… China is a very strong candidate for that…. If you push away your friends, you mustn’t be surprised if the friends start looking for new friends.”
And a U.S. tourism boycott? That’s probably just one tweet from some well respected person away from starting. Tourism to the U.S. accounts for some 2.5 percent of our GDP. Even a temporary reduction could put a good sized dent in our already meager level of economic growth.
Moreover, Americans protesting Trump’s would-be autocracy may start changing tactics. For example, they can easily block transportation to and from airports by simply driving abreast of one another at very slow speeds.
Trump’s game plan appears to be to demonstrate he’s a tough guy who will do what he wants when he wants regardless of anyone else’s views. Perhaps he thinks this will strengthen his hand when it comes to future international negotiations on economic and security matters. But what if some of the above starts to happen. Congressional Republicans will be pressured to pass a bill to overturn his Muslim ban. (Yes, it doesn’t formally single out Muslims, but that’s how it’s being perceived by everyone, apparently, but Trump and his yes men.) This is certainly the wake up call Trump needs before he does even more damage. Such a Congressional slap in the face would severely weaken Trump for the remainder of his Presidency. How could someone supposedly so bright and so obviously self interested not think about the potential downside of his actions to himself, let alone our economy?
For its part, Wall Street seems as oblivious as the President to the economic disaster he is courting. My prediction is a major drop in the stock and bond markets in the next few days. Whatever you think of Trump’s policies, they are producing economic uncertainty, which can quickly end America’s reputation as a safe haven and raise interest rates. This, in turn, can lead to a major crash in stock and medium- and long-term bond markets.
I rarely make such predictions. But Trump is an economic wrecking ball, which is why I’m encouraging everyone I know to take financial cover from Trump’s stupid economics.