Trump’s Trade Policies – A Result Of A Misdiagnosis Of The Cause Of American Economic Problems [OPINION]
“Trump failed to realise that hyper-competition exists in many manufacturing sectors now, and that is due to several factors.”
By
Emeritus Professor Dr. Mohd Nazari Ismail
Faculty of Business and Economics
Universiti Malaya
Since he became president of the United States for the second time early this year, Donald Trump has been busy talking about imposing import tariffs on several countries.
However, he has been forced to backtrack a couple of times when American business leaders reportedly advised him not to implement the policies because they will hurt American businesses more than they help them.
During his previous presidential campaigns, he promised Americans he would protect their jobs and improve their lives as part of his MAGA (Make America Great Again) objective.
Currently, many Americans are facing cost of living problems and cannot even afford decent housing. Buying homes is now out of the question for most Americans because of the high prices.
Even rental rates are unaffordable for many Americans, forcing them to live in temporary shelters or even in their cars, even though some may have jobs.
Trump blamed the situation on several factors, notably the influx of illegal immigrants, cheap imports from overseas, especially from China, Canada and Mexico, and American companies setting up factories overseas or sourcing components from overseas suppliers, thereby reducing the number of job opportunities to Americans.
But what is the true reason why American companies have moved overseas or sourced from suppliers all over the world, including China? They did not do all this because they felt benevolent towards foreign workers and wanted to increase their welfare. The main reason is to increase competitiveness by reducing costs.
Trump failed to realise that hyper-competition exists in many manufacturing sectors now, and that is due to several factors.
Many manufacturing firms are now giants that produce on a mass scale. This started during the time of the Industrial Revolution. Before that, economic activities were run by cottage industries on a small scale.
But the birth and subsequent growth of the banking industry in Europe enabled the building of industrial factories that are operated by massive firms operating mass-scale manufacturing processes.
This trend was then transferred to America when banks such as Rothschilds and JP Morgan also moved there.
The American consumer market, which was much bigger than the European market, helped American firms become more competitive globally.
They dominated many industries, especially aircraft manufacturing, automotive, electrical, and electronics. They then compete against each other to control the markets.
They are analogous to huge wrestlers in the ring who are also very skilled in the sport.
These wrestlers were able to become big, strong and athletic by using steroids.
They are very fit because having any excess fat will reduce their competitiveness.
As we know, the competition between them is very intense. In the ring, their main objective is to flatten their competitors.
In the business world, these competitors are the big corporations, and the steroids that enable them to be so big are funds borrowed from banks. That is the reason why these large firms are highly indebted, as can be seen in the table below:
Global firms and their total debt in 2024:
| Firm | Total Debt |
| HP | USD10.921 billion |
| NVIDIA | USD11.056 billion |
| Tesla | USD13.62 Billion |
| Dell Technologies reported | USD 24.57 Billion |
| Hyundai Motor | USD100 Billion |
| Apple | USD119.1 Billion |
| General Motors | USD130.69 Billion |
| Ford Motor Company | USD 158.5 Billion |
| Toyota Motor | USD241.82 Billion |
Due to the banking industry’s available funds, these large companies can come into existence, grow rapidly and carry out expensive research to produce innovative products.
The trend will continue as long as the banking industry exists and expands. Companies wishing to remain competitive will be forced to borrow more funds and look for ways to reduce their costs.
One of the main strategies to reduce costs is finding global production locations that offer similarly high-skilled workers willing to work for lower pay and benefits.
This has happened since the 1970s when many consumer and electronic products approached the maturity stage of their product life cycle.
During this stage, the technologies involved are more mature, which allows more players to enter the industries.
That was the main reason many US electronic companies, such as Intel, Motorola, and Texas Instruments, came to Malaysia and other countries in the region in the 1970s to set up assembly plants. Our labour costs were much lower compared to American labour costs.
Eventually, other locations such as China, Taiwan, India, and Vietnam later also became attractive to these firms, who would then export the products back to the US.
China is now the primary location for Apple’s computer manufacturing, with Taiwanese original design manufacturers (ODMs) like Foxconn, Pegatron, Wistron, and Compal Electronics playing a key role.
Nvidia’s Blackwell chips, which the company unveiled in March, are manufactured at TSMC’s facilities in Taiwan.
General Motors (GM) sources parts from various countries, with South Korea, China, and Mexico among its top sourcing countries.
The term used for this strategy is “off-shoring”, and it is practised by all major global firms to remain competitive with some slight variation.
Some companies will subcontract the manufacturing of parts of their products overseas and export them back to the US for final assembly. For example, American automotive companies such as GM and Ford source many of their products from overseas suppliers.
By undertaking these strategies, the products can be sold to US consumers at a lower price and allow them to compete against competitors from Europe and elsewhere.
In other words, `off-shoring’ is simply a last-ditch attempt among US manufacturers to remain competitive in this current world of cut-throat competition brought about by the easy availability of borrowed money from the banking and financial industries.
Attempting to force American companies to relocate their manufacturing activities back to the US will reduce their competitiveness.
If high tariffs are imposed on imports to protect US manufacturers, their competitiveness will be eroded, and US consumers will also experience an increase in their cost of living.
In conclusion, it is essential to understand the fundamental forces at work that are causing the current situation of a globalised network of productions, resulting in the closure of many manufacturing plants in the US, thereby creating a serious unemployment problem there.
The most important of these forces is the global financial industry, which acts as a financial steroid, causing a dysfunctional competitive situation in all industries.
Trump’s policy of imposing tariffs will only produce more problems for US producers and consumers. He needs to understand that as long as the banking and financial industry continues to grow, low wages and chronic unemployment will persist and worsen.
Dr. Mohd Nazari Ismail is an Emeritus Professor at the Faculty of Business and Economics, Universiti Malaya.
If you’d like your opinion shared on TRP, please send it via email at editorial@therakyatpost.com with the title “OPINION:” or through social media on TRP’s Facebook, Twitter, and Instagram.
