Trump's Trade Grenade

Whether you like it or not, Donald Trump is our president and for those of us who know anything about economics, his being our most powerful leader means he has a "YUGE" affect on our economy.

If you've been watching the news lately you might have noticed that President Trump is talking a lot of smack. Just recently, he called for a 20% import tax on Mexican goods. To the layman, this may sound like a good idea. More tax on their goods means more money for the U.S. Right? 

Wrong.

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If President Trump actually follows through (who knows what we can believe, but let's just suppose he did) there would be losers. Namely, the biggest loser would be you and me, the consumer. This is because firms would have to pay extra for goods coming from Mexico. To stay profitable, these firms will have no choice but to raise their prices. This means that if you want a Mexican-made good (major car brands for example make many of their cars in Mexico) you will have to pay more money!  Not only that, but when the price of a good increases, consumers will often respond by demanding less of the product (this is represented as a movement along the demand curve, graphically). Consequently, in the simplest terms, everyone from the consumer to the firms is sad. 

When price goes up (to P2), demand goes down (to Q2). Photo via sanandres.esc.edu.ar

Economically speaking, President Trump's audacious tax plans are just not a good idea, and history has proved this to us. You may have heard of the terms "mercantilism" and "laissez-faire." Well, if I were to explain this in a way that won't put you or me to sleep, I would say this: mercantilism is policy where a country exports more than it imports in order to grow its economy. Some European countries tried this from the 16th to 18th centuries. Eventually, they realized it was bad. Then these countries instituted laissez-faire, in which countries can freely trade and it worked! Mr. Trump, however, his spouting ideas that are dangerously mercantilist. 

Let's all wish for his success as our POTUS. Photo via: storypick.com

Let's hope that we don't see these random import taxes come to fruition. I don't know about you, but I wasn't given a small loan of million dollars from my parents. Actually, my parents won't even give me a small loan of 0.000001% of that. So, I don't want my goods to increase in price. I like have as much disposable income (economic term) as possible so I can have as much purchasing power as possible! It's simple economics!