It’s a new year, and a completely new economic paradigm is in the works as the Trump economic plan begins to come together.
Manufacturing has been migrating to Mexico since NAFTA came into effect more than 20 years ago. Now, Trump is trying to promote a business culture that prioritizes U.S.-based manufacturing for our flagship corporations. Trump’s tweets are calling out big name corporations, and specifically warning them that they should make their wares in the United States. This is already having an enormous effect on massive business dealings, and causing the Mexican Peso to tank.
Deals, deals, deals
Right after the election, with the help of Governor Mike Pence, a deal was struck to prevent the air conditioner maker Carrier from moving jobs to Mexico. This week, while Trump threatened to impose tariffs on General Motors for moving manufacturing jobs to Mexico, Ford made a big splash by cancelling a move to Mexico. Ford instead chose to keep making their compact sedan, the Ford Focus in Michigan, and nixed construction on a new factory in Central Mexico.
A huge problem for Mexico
Mexico’s economy has been fueled by a boom in auto manufacturing in recent decades. In fact, Mexico has become one of the biggest car manufacturers in the world since NAFTA was signed. Companies have been flocking to Mexico, and the country has embraced free trade, through more than 40 agreements with countries around the world.
This is why Ford’s decision to back out of building a billion dollar assembly plant in Mexico has shocked politicians and economic planners in Mexico. The peso, already at historic lows, continues to take a beating as this deal could be a sign of things to come.
Make it America Por Favor
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!
— Donald J. Trump (@realDonaldTrump) January 3, 2017
It’s not just President Trump, as House Republicans are floating ideas to introduce a border tax aimed at discouraging imports. Trump’s economic plan includes imposing a 35 percent tax on “goods made by companies that shift production abroad.” While the specifics have yet to hammered out, the sudden reversal of decades of American economic policy are clear: the government is willing to use punitive protective tariffs to promote U.S. manufacturing.
The impact of a trade pivot
Make no mistake, Trump’s election is revamping longstanding trade policy, and that’s scaring people all across the political spectrum. Right now, according to the Wall Street Journal, companies are preparing contingency plans to make sure that they’re ready for the new Trump economy.
While there is a lot of controversy surrounding this dramatic reversal of trade policy, some businesses like Ford don’t seem to be bothered. In fact, when they announced their decision to stay in the United States, their CEO told reporters that “the incoming administration will implement tax and regulatory policies favorable to American manufacturing.”
Takeaway: Wait and see
Free trade aficionados will lament the abandonment of our commitment to open trade, and will lodge complaints of unnecessary government intervention. Others will decry Trump’s direct engagement of American corporations through Twitter as chilling intimidation.
Then again, none of this should come as surprise. If you were paying attention during the Trump campaign, this is exactly what was promised. Many believe that these dramatic moves can reinvigorate American industries and bring back the millions of jobs that have been lost.
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