Does Isolationism Boost or Harm the US Economy?

Audio version available here (1 min. 50 sec.)

With the US election drawing closer, concerns about the American economy and how to fix it have arisen. Though both presidential candidates have made their stances clear on domestic economic reform, public focus has now shifted to foreign policy. How the United States handles its trade with other nations can have just as much of an impact on the economy as local policies. Whether the nation decides to be more isolated from foreign trade or opens up the border, this election could have severe economic implications.

There are two main ways the country could decide to take its foreign economic policy. The US could invite more foreign business in, or it could take an isolationist stance. Both would have different impacts.

Opening up the US for more foreign trade has its pros and cons. Concerns about the trade deficit could discourage free trade, but there’s a difference between no tariffs on imports and a foreign company establishing its worksite within US borders. With this approach, jobs are created for the local workforce, in theory boosting the area’s economic output and tax revenue. The downside to a foreign company on American soil is the host nation’s lack of control. Less investment money will actually stay in the US as profits flow out to the foreign shareholders rather than homegrown business owners.

On the other hand, the US could choose to take an isolationist stance. In this scenario, high tariffs are imposed on foreign goods. While the tariffs rake in higher revenue for the government, domestic manufacturing could make up for potential drops in imports, giving local businesses the boost they need. The con here is that the consumer could be caught in the middle of all this. If local businesses don’t pick up the slack for lower imports, the consumer could get stuck paying higher prices put in place by foreign businesses attempting to scrounge together a profit after high taxes.

Ultimately, which direction the nation heads in will be determined by which presidential candidate wins. We won’t know until after November 5th, and especially not until the new president begins taking action. As we’ve been encouraging business owners to do in the weeks leading up to the election, preparation for whichever turn the economy might take in the coming months is vital. Feel free to watch our multiple videos on the topic, or for more personalized advice, give XQ CPA a call.

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