Donald Trump, the US President elect, attributes the unemployment in the US to companies leaving the US and outsourcing their business plans. From 1998 to 2010, the US lost 34% of its jobs, which was mainly due to outsourcing by American companies.
. Even if it is difficult to estimate the number of jobs which US companies move overseas every year, nonetheless, according to figures, 300 jobs are outsourced every year. According to the report given by the US Secretary of Commerce, from 2000 to 2010, US multinational companies cut 2.9 million of their workforce whereas the jobs created by outsourcing was 2.4 million.
The Reasons for Outsourcing
For different reasons, big American companies manufacture their products outside the US. The main reasons are reducing costs by paying less wage, escaping US regulations about the payment of fringe benefits and tax evasion in the US. Other reasons for outsourcing by big companies are access to world database and proximity to customers in a big new market. American companies think outsourcing is necessary, reasoning that it is necessary for them to gain a foothold in emerging Asian markets. In addition, exporting goods from foreign countries to other countries is less costly, compared with the US.
Targets of Companies Outsourcing
Consistent with “Importing Laws and Regulations” already passed in the US, some countries in the Caribbean, some countries in deserts of Southern Africa, Israel, Jordan, Chile, Singapore, Canada, China and Mexico are duty-free. In addition, in such agreements as TPP, and NAFTA, the signatories are subject to free trade with the US. Thus, American companies which import goods to the US, usually outsource their activities to these countries.
Most of the time, American companies move their capital to the countries where there is no tax or very little tax levied on their income. In fact, these countries are tax havens for big American companies. According to the figures, in 2015, the target countries for outsourcing by American companies were India, Indonesia, China, Mexico, Canada, Bulgaria, the Philippines, Jordan, Singapore, Thailand, Lithuania, Egypt, Malaysia, Chile, Hungary, Poland, Czech Republic, Ukraine, Romania, Latvia, Vietnam, Ghana, South Africa, Kenya and Senegal.
- Trump intends to revive US economy by reducing taxes, preventing US companies from outsourcing, re-negotiating trade agreements and imposing tariffs on imports from some countries including China.
- Punitive tariffs will be imposed on American companies which manufacture outside the US to prevent American big companies from investing in other countries and outsourcing.
- According to Trump’s trade plan, tariffs for imports from China will be 45%, Mexico, 35% and for imports from any other country trying to weaken American dollar, will be 15 to 45%, the most important of which are Europe, Japan and South Korea.
- Concurrent with imposing higher tariffs, an attempt will be made to reduce production costs in the US by reducing taxes up to 15%.
- Seeking Congress Approval: According to US rules, President Trump could increase tariffs by 15% for 150 days. However, after this, it would be necessary to seek Congress approval to increase tariffs.
- Withdrawal from TPP, not re-negotiating NAFTA, negotiating bilateral agreements to support American jobs, and reducing financial commitment to US forces outside the US in Eastern Asia.
The Impacts of Trump’s Policies on US Relations with East Asia and Latin America
Given these policies, US government’s relations with countries in East Asia and Latin America will be tense and uncertain.
Trump calls China “currency manipulator”. China has kept his country’s currency “yuan” constant against the dollar. On the other hand, because China is considered as America’s largest banker, it puts pressure on the US in various circumstances. For example, when the United States puts pressure on China to increase the value of Yuan, China threatens the US to take its shares out of the US.
Trump’s promises about imposing customs tariffs on Chinese goods imported into the US by 45% could raise the price of Chinese goods. This could help boost American domestic industry. However, this will also be a severe blow to companies which have chosen China as the place to manufacture. For example, if Apple wants to import its products to the US, these products must be sold for thousands of dollars, not hundreds.
Adoption of tough policies against China by Trump brings about important dangers for southeast Asia. With the harm done to Chinese economy and not renewing Trans Pacific Partnership (TPP) trade agreement, the economy in the region will be slowing down. Given this uncertainty, there will be less investment and growth will slow down, leading to weakened trade within the region. Given that China is one of the largest economic players in Southeast Asia, the decline in demand in China will have a destructive impact on the large economies of Southeast Asia. Singapore and Vietnam will be most affected as both are heavily dependent on international trade.
South Korea is one of the signatories of the world’s free trade agreement. However, as Trump put it, the free trade agreement between the US and South Korea is catastrophic and has resulted in the loss of 100,000 jobs in the US. In this regard, he asked Seoul to have more contribution to USFK, reduce its size or withdraw from the agreement. The expectation is Trump will have similar financial agreements with other allies including Japan and NATO.
- The impact of Trump’s policies will also be significant in Latin America. Given Trump’s acknowledgement that he would not re-negotiate NAFTA and that he would even tear it up, it is predicted that Mexican Peso will be devalued in 2017, leading to higher inflation and financial pressure. Thus, trade relations between Mexico and the US will be endangered as Mexico exports 80% of its goods to the US. However, it is possible to consider Trump’s threatening to tear up NAFTA as simply a way of pressuring Mexico to accept the custom tariffs imposed by the US on certain goods so that the chains of supply would return to the US.
– Central America and the Dominican Republic also have an agreement with the US titled CAFTA-DR. With no further negotiation about this agreement, the trade relations, the provision of financial support by the US and the US involvement in the issues of regional security will undergo some changes. Trump’s insistence on bringing back outsourced jobs to the American soil will lead to loss of many job opportunities in El Salvador. In addition, the economy of some South American countries that export agricultural products to the US will be adversely affected.
– On the other hand, it is difficult to imagine that such countries as China, Japan, South Korea or Mexico will not take retaliatory measures. It is likely that they will retaliate by imposing high tariffs. This will affect American products worth billions of dollars. In spite of Trump’s policies to bring jobs back to the US and create jobs, the expectation is that other South Asian countries won’t support American companies and the prices of American products such as Apple and American automobiles will dramatically decrease in these countries. China has threatened to support French Airbus Company instead of the American Boeing, if the US imposes tariffs of 45%.
Trump’s business plans will undoubtedly slow down American economy. In addition, imposing high tariffs on Chinese and Mexican goods will lead to smaller economy and higher inflation rate. It is necessary to be mindful that retaliatory measures of such countries as China and Mexico to impose high tariffs on American goods will be detrimental to US exports. Moreover, it does not seem that the Congress will agree approve of all Trump’s policies.