Dateline: Kuala Lumpur, Malaysia
I recently wrote about what a Bernie Sanders presidency would look like and how you should prepare for it from a financial perspective. This time I’m going to take a look at the other candidate creating a media firestorm: Donald Trump.
As entertaining and perhaps refreshing as it has been to see Trump openly flout the pandering and stilted political correctness that has come to dominate American political discourse, there are worrying signs for what both his and Sanders’ success means for America’s economy and individual freedom in the West.
Whether it’s Sanders proposing wealth redistribution and lambasting corporations like Google and Microsoft for sending jobs and money offshore or Trump suggesting tracking Muslims and deporting illegal immigrants en masse, what we’re seeing is the genesis of a populism that supports government’s ability to control personal freedom, both physically and economically.
As Sanders is rallying his supporters with promises to restrict the flow of goods and capital and Trump is advocating restrictions on the movement of people – basically human capital – we’re trending towards a world in which protectionist, politically expedient solutions aimed at assuaging people’s basest fears will overrule economically viable ones.
The economic expansion that accompanied globalization of the 1990s has given way to an era of trade restrictions, currency devaluations and calls for wealth redistribution strikingly similar to the years preceding the Great Depression.
And the plans President Donald Trump claims he would implement would fly in the face of the pro-growth, pro-business policies of countries like Singapore.
What would Donald Trump’s tax plans mean for business?
Beyond the climate that’s led to his success, it’s important to look at the impact that Trump, who positions himself as a pro-business, Washington outsider, would have if elected.
Trump has released a tax plan that he claims will lead to 6% economic growth, a very ambitious number for a country like the US. The tax plan itself certainly has some pro-growth measures, such as cutting the business tax rate to 15% and eliminating the estate tax.
However, it also includes measures that may worry globally minded investors, such as a 10% tax on overseas earnings and putting an end to deferrals (income earned overseas that is not currently taxed until a company decides to bring the money back to the United States).
While Trump’s plan, especially his proposal to cut the corporate tax rate, is a step in the right direction, his approach to the presidency in general could be disastrous for the American economy.
What Trump’s other policies would mean for the economy
In his immigration policy report, he states that he would raise the prevailing wage for H-1B workers, in effect forcing companies to pay more for immigrants and thus hire more Americans.
While this plan sounds good in practice and will play well with Trump’s nativist base, allowing these types of visas actually has a multiplier effect on the economy, rather than costing citizens jobs.
In fact, when a high number of H-1B visa applications were eliminated in the 2007-2008 visa lotteries, the United States missed out on creating as many as 231,224 highly-sought after tech jobs for U.S.-born workers in the two years that followed.
Just as damaging would be Trump’s approach to illegal immigration. While we at Nomad Capitalist are fully behind doing things the legal way, we believe that the rhetoric from Trump alone could cause massive losses in GDP and that solutions other than mass deportation would be much healthier for the economy.
Arizona’s anti-illegal immigration law, SB107, is a great example of how creating a perception of a hostile environment for immigrants can affect business. Even though the most substantive aspects of the law were struck down in court, the perception of the state that the law created was so harmful for investment that in the few months after its passage, Arizona’s economy lost $141 million.
A drop in tourism also resulted in an estimated 2,761 jobs lost, resulting in $253 million lost in economic output in those months.
Not only are Trump’s plans even more extreme than what was originally proposed in SB107, he’s already made enemies of two of the US’s largest trading partners in Mexico and China. Before even looking at the practical effects of Trump’s plans themselves, you must question what effect his presidency would have on the climate for investment.
When it comes to the actual effects of these anti-immigration laws, if SB107 ever were fully implemented, it would have eliminated an estimated 580,000 jobs for immigrant and native-born Arizonians, shrinking the state’s economy by $48.8 billion.
Compare that with the $1.5 trillion possibly gained nationally by comprehensive immigration reform and you can get an idea of what effect Trump’s immigration plans would have on the economy.
Singapore is now the third-richest country in the world, in large part due to its liberal immigration policies and is quickly becoming the global hub for wealth. A forward looking politician would do best to emulate Singapore’s successes rather than stoke fears to gain support for failed policies.
What you can do
No matter who wins the coming election, it would be wise to take steps to protect your wealth. While liberals want draconian measures like a global wealth tax, guys like Trump could turn the United States into an even bigger disaster of a different kind.
Opening an offshore trust or foundation and investing in offshore gold would be expedient in preparation for either a Sanders or a Trump presidency precisely because it removes your assets from one country’s system and one currency that negative economic actions effect the US dollar.
Even if neither of these two wins and the title goes to one of the more “establishment” candidates, taxes are likely to go up while personal freedom is almost certainly not to.
Fortunately we now live in a world in which there are other solutions outside of our traditional borders and by finding these opportunities we can thrive despite what may happen within our home country’s governments.