Protectionism is the cornerstone of economic policy that tends to curb the flow of trade between countries in ways such as setting import duties, determining import quotas, and various other regulations in order to achieve trade balance surplus. Protectionist policies aimed at protecting local firms from overseas competitors, and encouraging the creation of maximum employment opportunities for citizens.
To meet that objective, protectionists can provide subsidies and tax deductions for domestic companies. Conversely, taxes such as import duties in large quantities imposed on goods from abroad. In connection with that, since some time ago, protectionist policy is connoted in line with the anti-globalization movement.
The doctrine of protectionism is in contrast to the idea of free trade, in which the government seeks to reduce barriers to international trade. Free Trade thrives on the understanding that a country's wealth can be gained by mutual progress, not by preventing competition. Expectations, competition will encourage the emergence of better products and more competitive for consumers, and encourage innovation for the progress of civilization.
What Is The Trumpistism Of Trumpism?
Specifically, the rhetoric of Trump's protectionism since he was in the campaign before the presidential election covered many aspects, not just the economy, and became the core of the "America First" slogan. Among them:
Deport illegal immigrants and build border walls with Mexico.
Applying tighter immigration rules and re-evaluating US-signed immigrants, which worries IT companies in Silicon Valley because most of their employees are immigrants.
Prohibits outsourcing jobs outside the US.
Canceled US participation in Trans-Pacific Partnership (officially done).
Negotiating NAFTA with Mexico and Canada.
Trim corporate tax from 35% to 15%.
Planning a Tax Holiday (similar to the Amnesty Tax launched by the Indonesian government some time ago) to encourage corporations to bring home the funds invested abroad.
Demanding China, Japan and Europe on charges of currency manipulation.
Applying a Border Tax.
Among all the rhetoric of protectionism that has been thrown, only one that has been really implemented, while the rest is still a matter of debate. Donald Trump's intentions to tighten immigration also came under strong resistance within his own country. In fact, about 100 Silicon Valley companies today (7/2/2017) have just filed a joint lawsuit to prevent it from complicating immigration rules.
However, for financial market participants, the most worrying is the last point: Border Tax. The problem is, the word meaning literally "Border Tax" is potentially a double-edged sword that sparked an international trade war.
What is a Border Tax?
Border Tax is similar to import duties in terms of protectionism above. Namely, taxes on products imported from other countries, in order to protect similar products made by local companies. However, the Trump's Border Tax also seems to include products made by US companies abroad. Thus, the Border Tax is also intended as a "penalty" for companies that build factories abroad.
One of them, Trump has threatened to impose a 35% tax on automotive products made GM and Toyota in Mexico. The problem is that such protectionism measures are prohibited under the North American Free Trade Agreement (NAFTA) agreement, so it must first renegotiate or withdraw US from the trade pact.
These steps of Trump protectionism have actually long been triggered. As quoted by Bloomberg, in his book published in 2011, he appealed for 20% tax on any country that exports goods to the US. In one of his campaign speeches, he also suggested the implementation of 45% tax on imported goods from China and 35% on goods from Mexico.
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