The US has a huge growing path dependence on the current global economic model, which, in our view, Trump can hardly change. For example, Trump repeatedly advocates "manufacturing back to the US" and "MAGA" starting his first term of office. However, from a data perspective, during his first term, the proportion of manufacturing in the US GDP continued to decline. When he won the 2016 election, the manufacturing industry accounted for 10.8% of US GDP, but when he left office in 2020, this number decreased to 10.1% (see Figure 5). On the contrary, during the past 4 years of Biden's presidency, due to the impact of the pandemic on global supply chain, the demand for domestic output has increased, manufacturing has slightly rebounded to 10.2% of GDP. However, looking at the long-term cycle of the past 70 years, there is still no sign of a reversal in the overall decline in the proportion of manufacturing in the US economy.

Also, from the perspective of capital expenditure, the same pattern applies. The US economy is currently being dominated by high-tech R&D and service industries, making it almost impossible to return to the manufacturing dominated economic model of 50 years ago. Looking at the capex of US companies, the proportion of R&D investment is also increasing (see Figure 6), hence traditional manufacturing industries which are labor-intensive and capital intensive are unlikely to become the dominant core of the US economy again.

However, from a sociological perspective, the past economic structure shift in the US has inevitably led to a reduction in income and job opportunities for a large number of traditional manufacturing industry workers., The rise of American right-wing populism represented by Trump in the political arena is the result of this social dissatisfaction. The Democratic Party's response to this is a large-scale fiscal expenditure expansion which we had mentioned earlier, attempting to alleviate this contradiction through various welfare programs or even directly giving money to low-income groups. However, judging from the results of this year's US election, the Democratic Party's policy path choice is clearly a political failure. The Democratic Party not only lost all the swing states, as well as the majority of both houses of Congress, but also lost the popular vote to Trump in the general election for the first time.

But does this mean that Trump can really change the current economic development path of the US? We believe that the possibility is very low. Firstly, the current path of economic development in the US is highly favorable to large capital and the ultra-rich class, especially those who possess a significant amount of equity capital wealth. At the same time, this model is also very favorable to the monopolized companies in the US. In the past few years, the Democratic Party's large-scale fiscal expansion has further strengthened the advantages of these large capital and giant corporates. The policy proposals of the Trump government such as deregulation and corporate tax cuts will only further strengthen the advantages of these monopolized giants and large capital, so that they can gain a larger proportion in the economic growth benefits.

Similarly, if the Trump government significantly increases the overall import tariffs on the major trading partners, ordinary consumers in the US will also pay the price, especially for low-income groups.

Source: Straits Financial Chief Economist Commentary - December 2024