By Everson W. Hull, Ph.D. ECON
Under the leadership of President-Elect Donald J. Trump, the prospects of a more vibrant U.S. economy will be led by the proposed reduction in the corporate tax rate from 35 percent, the highest in the entire world, to 15 percent. This will revive U.S. economic growth which has been at an average of 1.4 percent per annum during President Obama’s 8-year term. It is the lowest rate of economic growth for any U.S. President over the last 50 years. These high tax rates have snuffed out vigorous job creation in the U.S., with Black Americans, the last hired in recovery and the first fired in a downturn, hardest hit. As a consequence, the unemployment rate gap between blacks and whites has widened to the highest differential ever recorded in the historical data reported by the U.S. Bureau of Labor Statistics.
The benefits anticipated from the proposed tax cuts will have an expansionary effect on the economy that will be reflected in a stream of new business activity that will generate income and jobs across the board providing the means for boosting tourism traffic in St. Kitts and Nevis and the entire CARICOM region. There will be a separate benefit to very ordinary households whose disposable income, by definition, would be higher, providing the means for increased tourism traffic as well as personal remittances that flow to St. Kitts and Nevis.
Separately, there will be an easing of the burden placed on U.S. businesses from excessive U.S. Federal regulations. A portion of this benefit will be reflected in less aggressive enforcement of regulations, by the Federal Agency Task Force (FATF) an arm of the U.S. Treasury, that has been harmful to our off-shore financial services sector.
There is also expected to be a new realization within the White House of the devastating effect of U.S. government regulations on access to our correspondent banking services. The denial and/ or increased cost of access to these services stands in the way our ability to engage in trade and commercial activity and adversely affects the flow of personal remittances to our shores. The perverse effect of driving the payments of goods and services into an underground black market is increasingly being recognized by the U.S. Office of the Comptroller of the Currency and influential global organizations such as the International Monetary Fund and the World Bank. It is anticipated that the Trump administration which comes with a heightened awareness of the damaging effects of excessive Government regulations will take deliberate steps in restoring access to our critically important correspondent banking services.
Additionally the battery of U.S. States, like Colorado, which are inclined to black-list and label St. Kitts and Nevis and other low-tax jurisdictions pejoratively as tax havens will not find a friend in the White House who has a propensity towards higher and higher taxes and who is willing to turn his back on low tax jurisdictions such as St. Kitts and Nevis; while other states in the U.S. contemplate replicating what Colorado has done.
We are also to be reminded that President Elect Trump is by nature a builder. He builds things and he enjoys building big things. Most policy actions are removable. Monumental edifices are not easily removed. The structures that he builds will be highly visible and will have a lasting effect on the masses who can actually see what he has done. The transformation of the Post Office in Washington DC into what has emerged as the finest hotel in DC is an example of the types of buildings that he builds.
President Trump with full control of both Houses in Congress will not face the resistance that Obama faced in securing legislation for funding large infrastructure projects. Unlike Obama who talked about an infrastructure plan that would get the U.S. out of the serious downturn in 2008, Trump comes with the support of Congress and also brings to the job the tools of the trade required for successfully transforming the nation’s infrastructure, and at considerably lower costs than would most builders in America. These changes will be reflected in modernized airports, improved highways, bridges, tunnels, schools and hospitals. Coupled with the stimulus provided by his proposed mammoth tax cuts, these actions will provide a huge boost to job creation in the U.S. which has been severely depressed under Obama.
President-Elect Trump holds a comparative advantage in this area. These construction efforts will not only create millions of jobs across America; but will also be reflected at home in St. Kitts and Nevis in increased tourism expenditures by Americans who do not mind spending their surplus income and wealth in far-flung places. We will be among the beneficiaries.
The threat posed to our own tourism sector from the opening up of Cuba may be somewhat reduced. President-Elect Trump won the Cuban vote of the seniors who fled Cuba when their businesses were expropriated by President Fidel Castro. They remain a powerful force that helped him to deliver the state of Florida, without which he would not be the President-elect today. The anticipated merger of trade and commercial activity between a Spanish-speaking Cuba, the Dominican Republic and Puerto Rico has the potential for reducing commercial activity in St. Kitts and Nevis. The potentially harmful effects of this merger are likely to be reduced if Trump does not promote with the same vigor, as did President Obama, the accelerated thrust under-way for the re-opening of U.S. trade and commercial activity with Cuba.
On the energy front, the innovations in technology used in accessing the massive reserves of shale oil in the Bakken States of North Dakota and Montana have allowed he U.S. to emerge as the country with the largest reserves of crude oil and natural gas. The resultant glut of energy on world markets has driven the price of petroleum products down. The economies that have been devastated in in the Bakken and adjacent affected states of North Dakota, South Dakota, Wyoming and Idaho delivered huge voting majorities for President-elect Trump. This is also the case for the Nation’s coal-producing state of West Virginia which has been devastated. It did not help Hilary Clinton to make the pronouncement that she would end coal mining in the Nation’s most productive coal-producing state.
In his America-first policy, Trump racked up huge majorities in these hard-hit energy affected states. He has pledged to reduce imports of petroleum products, develop and expand safe oil fracking techniques and move aggressively to coal gasification and other techniques. His support for the Paris Climate agreement will likely be somewhat subdued, with greater emphasis on cleaner energy within the contiguous 50 American states.
The leadership team that will be assembled will impose a check on a few of his contentious excesses. This is especially important in his pledge to bring jobs back to America. Often lost in the rhetoric is the stark reality that America benefits a great deal from the comparative advantage that St. Kitts and Nevis enjoys in supplying low cost products produced from our small manufacturing plants at home to the largest market in the world. These products that pour in from China, India, Mexico and those from St. Kitts and Nevis drive the prices of these products down in the U.S. and help to hold the rate of U.S. inflation in check. Imposing a blockade on these low-cost products will, with certainty, drive up the rate of inflation in the U.S. and, in turn, further reduce its economic growth rate.