There's a lot to fear about another Donald Trump presidency: The existential threat to US democracy. The possible abandonment of traditional allies in Europe and elsewhere. Befriending dictators like Vladimir Putin. And the danger it poses to our strong economy.
Our economy? Yes, while Trumponomics 1.0 had major flaws (like the deficit-increasing tax cuts for corporations and the wealthy), Trumponomics 2.0 is downright scary.
Although Mr. Trump has not yet issued a formal plan, the consistent conclusion, based on evidence from his campaign speeches, video monologues and his current circle of advisers, is that he will pursue a course that deviates even further from the traditional Republican line of a global economic policy approach and in the populist, isolationist direction. A second Trump term would most likely mean a continuation of Mr. Trump's unrefined instincts and what will appeal to his base.
On tariffs, immigration and regulation, Mr. Trump would continue the troubling trends of his first term. With new trade wars, the USA would fall even further into misguided protectionism. Companies and assets would be enriched through lower taxes and increasingly freed from control. Legal immigration would be reduced. And we would continue to spew carbon dioxide into the atmosphere while intentionally bogging down our booming clean energy sector.
That prospect even worries some in the business world who generally liked Mr. Trump's economic program in his first term while expressing distaste for the former president's personal qualities.
Now executives find themselves less liking his economic plans (particularly the international elements) and loathing individuals — while at the same time being turned off by what they see as the Biden administration's anti-business stance.
At the top of my list of concerns for a second Trump term is an even more aggressive protectionist approach to trade than he took during his four years in office. Mr. Trump never understood that trade as a whole can raise living standards and create jobs.
In his first term, Mr. Trump imposed tariffs on goods from steel to washing machines, which economic studies showed drove up consumer prices and ultimately cost American jobs, in part as other countries responded with their own tariffs.
And the inflation that worries voters now could get much worse, considering Trump wants to double import tariffs from an average of 2 percent to 10 percent (and even higher tariffs on countries that retaliate). currently. This step alone could increase the overall price level by an estimated two to three percentage points.
Then there is an even fiercer attack on trade with China. No one can rightly deny that China is pursuing aggressively protectionist policies. But Mr. Trump’s remedy could hurt us as much — if not more — than it does the Chinese.
Not only would he end China's “most favored nation” status, which would raise tariffs on many Chinese goods to as much as 40 percent, but he would also impose outright bans on some products, including electronics, steel and pharmaceuticals.
It could be difficult – if not impossible – to source these items in large quantities elsewhere in the world, and substitution would certainly increase costs for consumers.
On another isolationist front, immigration remains one of Mr. Trump's top issues (though he recently urged his fellow Republicans to abandon bipartisan legislation to address the issue). We definitely need to take control of our borders. However, reducing the number of legal arrivals – the language on the Trump website suggests it is reduced by well over half – and restricting work permits for all undocumented immigrants would hurt us economically. With an unemployment rate of 3.7 percent, there are not too many workers in America, but rather too few.
And with the birth rate low and baby boomers retiring, the labor shortage will only increase. To simply sustain the population growth of the last two decades, we would need to increase the intake of legal immigrants from about one million currently to about four million per year.
Less quantifiably, immigrants have contributed significantly to our economic success, from filling entry-level jobs to pioneering some of our most important innovations to running large companies.
Whoever wins the election will quickly face important tax decisions, as many provisions of Mr. Trump's Tax Cuts and Jobs Act are set to expire at the end of next year. The law gave most of its tax breaks to businessmen and wealthy Americans. And contrary to the Trump administration's promises, it never managed to pay for itself through increased economic activity. Given our stubbornly high budget deficit (nearly $2 trillion a year), do we really want to spend $3.4 trillion to extend the giveaways for a decade?
Another Trump presidency would almost certainly bring an attack on a signature achievement of the Biden administration, the Inflation Reduction Act. This (inappropriately named) law has unleashed a flood of new energy projects that will provide a significant boost to reducing our fossil fuel emissions.
Mr. Trump would go in the opposite direction, promising to repeal many clean energy regulations and proclaiming at rallies that he would encourage energy companies to “drill, baby, drill.”
More broadly, Mr. Trump wants to remake the entire administrative state in his image, increasing the potential for unfortunate outcomes, from business rampages to unprosecuted corruption. He has vowed to cut federal regulations and promised (as he did in his first term) to repeal two rules for every new rule introduced. In addition, he wants to strip key agencies such as the federal trade and communications commissions of their independence in order to centralize and weaponize their power in the White House. He also plans to subject all civil servants to a political test and promises to purge the ranks of those he sees as “rogue bureaucrats.”
This open politicization of key government functions could allow Mr. Trump to indulge his whims. He reportedly wanted to block AT&T's acquisition of TimeWarner in 2017 because of his dislike of CNN. He also repeatedly told his chief of staff, John Kelly, that he wanted the Internal Revenue Service to investigate his perceived enemies.
As far as monetary policy is concerned, a war against the Federal Reserve is to be expected. When Mr. Trump appointed the current chairman, Jerome Powell, he quickly turned on him, calling him an “enemy” for a speech acknowledging the damaging effects of the president’s trade war. Mr. Trump has also regularly spoken out against the Fed's hike in interest rates, which has helped bring down inflation in the wake of the coronavirus crisis.
Mr. Powell's term ends in 2026, which would give Mr. Trump the chance to appoint a more submissive Fed chair — perhaps someone who would indulge his passion for cheap money that would boost the economy in the short term while risking renewed inflation .
Speaking of personnel, it is unlikely that Trump will attract a capable economic team capable of curbing his worst instincts. I doubt that moderate advisers like Gary Cohn, a former Goldman Sachs executive who led Trump's National Economic Council from January 2017 to April 2018, would be willing to join a second Trump administration.
So what macroeconomic impact would another Trump presidency have? An irresponsibly stimulative monetary and fiscal policy that could stimulate the economy at the expense of higher inflation. Prices that would be driven up by Mr. Trump's protectionist trade policies. All of this would ultimately cost jobs.
Perhaps Mr. Trump would be deterred by a narrow victory. And if Democrats retained at least one House member of Congress, it would be at least partial control.
Nonetheless, it is an unsavory prospect, one of the many reasons Americans, including business leaders, should be afraid — so afraid — of Mr. Trump's return to the White House.
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