Question

To partially overcome the US current account deficit, the Trump Administration neds to attract FDI that could spur the nation's gross domestc prodtuct (GD growth rate. Based on the chapter material, what policy measures should the Trump Administration take to keep attracting FDI into the country? Be mindfu of the tariffs recently imposed by the Administration, as well as the proposed re-structuring of the North American Free Trade Agreement (NAFTA)

Answer 1

The policy measures that the Trump administration should take in order to attract FDI in the country are as follows:

1) Setting up permanent offices of International organizations in the country: This would directly add big foreign investment in the country and also a lot of jobs. Michelin opened a new facility and expanded another after it was offered an incentive package by South Carolina. Similar was the case with Embraer in Florida.

2) Business Incentives: Offering business incentives would help to attract more and more foreign organizations to invest in the country.

3) Ease of doing business: the USA currently is ranked 8th in Ease of doing business, with countries like New Zealand, Singapore, Denmark way head in the rankings. To get more foreign investment, Trump administration should take steps to improve the USA'a rankings. The USA ranks low in parameters like Starting a business, Dealing with construction permits, Getting electricity, registering property, Trump administration should target and improve on these parameters which would help get more foreign investors in the country.

4) NAFTA- Since NAFTA has been implemented, USA's trade with Mexico and Canada has grown more than 3 times, which is higher than the USA's trade with any other country. Trump administration is of the view that NAFTA has resulted in job losses in the USA. However in the case of NAFTA, it is important to view the overall picture; With an increase in trade through NAFTA, the USA's economy as a whole grows. There are some jobs lost, but many others get created. Prices fall which helps domestics customers. Also, the quality of goods and services generally improve because of competition in the market. Thus, Trump administration should take a positive view of NAFTA and implement it for the overall growth of the country's economy.