America — back to voodoo economics, again!

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WHAT’S UP!

US President Donald Trump celebrated what he referred to as ‘Liberation Day’, when he signed an Executive Order putting tariffs on all goods from all countries that the US trades with. This included countries that had no human beings on them, like the Heard and McDonald Islands in the Indian Ocean. The notable exception was Russia, which had zero tariffs imposed.

In Trump’s warped view, the US economy is in a sorry state, ripped off for more than 50 years as other economies developed and advanced. He thinks by imposing tariffs on all countries, that would open American factories again, and some redneck in the Midwest will get their beer money.

But he is wrong; America is not a poor victimised colony, on the contrary, it has been growing at a faster rate than most industrialised countries. What Trump does not see, or has refused to see, is how it has been growing, and how the world economy is changing.

According to the World Bank, in 2008, the US economy was about the same size as the Eurozone ($14.77 trillion versus $14.3 trillion). In 2023, it had grown to almost twice that of the Eurozone ($27.72 trillion versus $15.78 trillion). Generally, American wages (and not just of the rednecks who think Trump is a child of God) are 40% higher than the rest of the industrial world. In addition, American GDP per capita is among the top 10 in the world.

What has happened is that American trade in ‘goods’ has fallen off, while its exports in services and technology have exploded. About 40% of US trade is now in services and technology, and the trend is is going to grow even larger. What it means is that the US is moving away from just manufacturing and into services and technology, leaving manufacturing to less developed economies. This also means that the US trade in goods will be increasingly smaller as the years go by.

But Trump does not understand this, his view of the world seems to be stuck in the 1960s, and his formula for tariffs has been described as ‘voodoo economics’ by experts. He seems to consider only trade in goods, but America leads the world in trade in technology and services, including, but not limited to, things like music, software, movies, law and banking.

Trump might want to look back and see what happened the last time extensive tariffs were imposed by a US president. In 1930, President Herbert Hoover signed into law the Smoot-Hawley Tariff Act, raising tariffs on over 20,000 imported goods to protect American industries. However, this protectionist policy backfired, leading to retaliatory measures from other countries, which ultimately deepened the economic crisis.

That was the time of the Great Depression, and while Hoover might have thought the tariffs would protect American industries and American jobs, it created the opposite, turning a bad situation into a disaster.

Those tariffs led to a sharp decline in global trade, with US imports from Europe decreasing by 71% (from $1.3b to $390m) and US exports to Europe dropping by 66% (from $2.3b to $784m) between 1929 and 1932.

Countries like Canada, France and Britain imposed their own tariffs on US goods, further hurting American exports and the economy. The total effect was a decline in world trade sense to US manufacturers to import parts from abroad and assemble them into whatever final product they would then by almost 66%. The US economy did not recover from those tariffs till way after World War II, which gave US manufacturers a second breath of life.

Trump thinks he is making America great again, but he is actually dragging it back into its past, while other modern economies will surge ahead. It made economic sell back to those who made the parts.

The American economy will no doubt suffer from this, but after three years (which Trump told his faithfuls would be how long it would take before America would be ‘great again’), it would have dragged further behind the rest of the world’s modern economies.

And while the US economy has dominated world trade since World War II, that will definitely stop, thanks to Trump. And there are not a few people who would welcome that.

There is a very good chance that manufacturers in the US will move their plants completely out of the country, which would make economic sense. The world economy is too intertwined for isolationism to have any space.

Trump must surely see this, right? All his advisors, and which also goes to most of the Republican party, are praise singers. His trade advisor, who used fake papers to get his PhD, is the loudest of them all.

So yeah, Trump’s economic policies verge on the historical ‘voodoo economics’, which might be something of an insult to voodooism, which is a pure art/religion.

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