The Trump administration considered that a very advanced deficit in abroad trade in goods led to the demolition of the American manufacturing industry, so it decided at least partially to shield itself from the world, so that uncompetitive home companies could rebuild. Although Trump is most frequently compared to president William McKinley in the context of abroad policy, his economical strategy is much more akin to that adopted by I U.S. Treasury Secretary Alexander Hamilton and his doctrine of "recruiting industries".
Hamilton concluded that without the protection of the home market, American companies would not be able to develop. He developed state protection over them in the form of advanced duties and the creation of strong barriers to entry into the US market. Basically, the plan was successful, and the British had done specified a work before. The policy of protectionism went even more spectacularly on the alleged Asian tigers (South Korea and Taiwan), which, due to their limited scale, had to aim at exports to the global marketplace – to a greater degree than duties, so put export subsidies on them, allowing them to sale goods cheaper.
The policy of protectionism is not stupid in itself. However, we have more and more evidence that this Trumpist 1 will prove to be.
What do stock indices say?
On 12 March, US tariffs of 25% on steel and aluminium entered into force. A fewer days earlier Trump threatened Canada with an additional 25%. However, after a fewer days he changed his mind. This could even be justified – in this peculiar case, it was to retreat the Canadian state of Ontario from its own retaliation efforts. However, specified a decision-making swing Trump has rocked many times in fresh weeks. This does not seem to be any thoughtful strategy, but chaotic decisions made based on impulses that do not know where they will lead.
This gigantic uncertainty is besides reflected in the state of the American economy, as evidenced by crucial declines in the stock marketplace there. From the beginning of January to March 11, the NASDAQ Technology Index shrunk by almost a tenth. The S&P 500 index (largest companies – equivalent of Polish WIG20) fell by more than 5%. Even industrial Dow Jones Industrial fell by over 2%. This all translates into billions of dollars – like counted Noah Smith, by March 10 from the S&P 500 index evaporated $4.5 trillion. This is simply a immense difference compared to Trump's first term, erstwhile the S&P 500 index increased by 5% in the same period.
One might point out that assessing the state of the economy on the basis of stock index behaviour is not very good. specified a remark would be good in the context of the vast majority of national economies, as is the flagship example of Poland, where stock exchange trends barely talk about the economical situation – much more crucial are unemployment rates, wage increases or industrial production.
However, the American economy is mostly finite, so stock indices are 1 of the main indicators of the economical situation. By data The planet Bank, in Poland, before the pandemic, the capitalisation of the full stock marketplace – i.e. the full value of listed companies – amounted to 26 percent of GDP. In the US, it was 158 percent, and, apart from global financial centres (Hongkong, Singapore and Switzerland), it was by far the highest in the world. By comparison, in Germany, the stock marketplace capitalisation in relation to GDP was 54 percent.
In another words, in the U.S. stock valuations of companies greatly affect their financial condition. In order to carry out the investment, corporations or their shareholders dispose of own shares or issue fresh ones, and banks frequently value them erstwhile granting credit. In Poland, where fewer people are in general on the stock exchange, companies finance investments mainly from their own savings or (lately little often) bank loans.
Is Musk gonna do it?
Asian tigers scrupulously conducted alleged indicative planning (based on indicators) and their exporters could number on the predictability of national decision-makers and the state's protective umbrella, if they could hope to get state bank guarantees or direct subsidies. In the United States of Trump's second term, the companies and investors are as confused as the abroad allies of Washington, having no thought what they're about to come into and what another countries' rhetorics they're going to be exposed to – duties usually work both ways. Meanwhile, in a finite economy like the American economy, trust is crucial and lost is not easy to recover.
The situation is all the more complicated due to the fact that Trump decided to follow the brutal methodology of the large business, where unclean games are on the agenda: price dumping (Chinese electrical car manufacturers or social networks), data fraud (global digital platforms) or coining addictive mechanisms (game producers and social media). Politics is besides frequently dirty and ugly, but rules play a much greater function in it. The continuity of power, nonsubjective decision-making criteria, respect for contracts concluded with both the public and abroad partners is important.
The contact between politics and business has always been blurred in the States, but the fresh Republican administration seems to exceed even its lower standards. This is becoming apparent to investors and capital markets. 1 of the evidence is melting the share rate of Elon Muska Tesla. Following Trump's election triumph in November, it increased from around 300 to over 450 dollars. Since mid-February, there has been a fast decline, and on 12 March stocks have already cost just over $230.
It turns out that the political connections of the richest man in the planet cease to be the asset of his companies, and become a burden. The violent actions of Muska and Trump each day increase the hazard of retaliation. The former, without any political legitimacy – even the legal legitimacy of the DOGE institution he led is highly doubtful – may lose political influence even in a fewer months. It's only a substance of decision by the highly labile Trump. Outside the United States, Muska companies are exposed to another countries' retaliatory restrictions (customs on electricity and regulations for digital platforms or the usage of AI) and little significant, but always, consumer boycotts.
Who needs wisdom and knowledge?
Retortions of another actors on the global stage, peculiarly those economically strong, specified as the EU or China, are already taking place. The European Union has announced the introduction of the first customs duties on goods imported from the US since April, which will cost the US EUR 8 billion. Customs tariffs worth another EUR 18 billion are on the way. The second may inactive effort to block Hungary, but Brussels has already tested a way to avoid their veto. How notes Politico, the EU's duties "will importantly exceed the level of the trade war that broke out during Trump's first term".
As a result, the US may lose global dominance in key areas. For example, in satellite communication systems specified as Starlinks. Bunchus statements Musko and Trump's short-term decision not to supply intelligence Ukraine has already led Europe to make its own systems, for example on the basis of the already existing French company Eutelsat. If EU retortions besides affect US digital platforms, they will be replaced by continent players, which would be much simpler and faster than replacing US satellites and weapons.
An interesting example is the Chinese semiconductor manufacturing industry. The Biden administration's tightened restrictions on the sale of integrated circuits led China to intensive defence efforts to guarantee supply continuity. "The side effect of US restrictions on the most advanced semiconductors is China's expanding investment in the production of older generation chips, strategically crucial for the arms, automotive and medical sectors. (...) By 2026, China has a chance to become a global tycoon in this segment” – She wrote Last year Paulina Uznańska from the OSW. By 2029 Beijing plans to increase its possible to produce chips by 40% compared to 2024.
The success of Trump's protectionist policy will besides not be conducive to the dismantling of American institutions by reckless policy of deregulation and seeking fast savings. How informs Reuters, on March 12, the Department of Education announced the dismissal of half the employees, and the aim is to dissolve this institution. According to Reuters, DOGE has already eliminated 100,000 jobs in the state administration. specified fast dismantling of bureaucracy can completely destabilise the state and deprive it of organization knowledge. So far, the fresh Republican government seems to not benefit from knowledge, but all the successes of industrial policy so far have been based on it.
