Should We Be Taking Trump's Economic Plans Seriously?

Should We Be Taking Trump's Economic Plans Seriously?

Former President Donald Trump, in an interview with Bloomberg a couple of days ago, highlighted some of the major economic policies that he would propose should he win the Presidential election this November. Trump plans to implement a 10% tariff on all imports to potentially boost domestic manufacturing, introduce meaningful corporate tax cuts to revive economic growth, ramp up fossil fuel production to reduce the nation’s reliance on foreign energy sources, and invest in critical infrastructure projects to stimulate the economy through government spending. Although not directly stated, Trump, in the recent past, has hinted at the possibility of increased presidential intervention in the country's monetary policy as well.

Second Time's The Charm

Donald Trump’s first term was a mixed bag. From an economic perspective, there is evidence of a strong performance. The U.S. GDP grew 2.4% in 2017, 2.9% in 2018, and 2.3% in 2019 before the Covid-induced recession led to a contraction of 2.7% in 2020. Before the pandemic wreaked havoc, the unemployment rate reached a 50-year low of 3.5% in February 2020, and the stock market performed exceptionally well too, with the S&P 500 index hitting a record high during his term before the current stock market rally took the index to new highs.

Despite reasonable economic growth, Trump attracted a lot of criticism for the trade war with China that began during his tenure. To this date, the U.S.-China trade war continues to impact consumers in both these regions. American farmers suffered from the tit-for-tat tariffs as China increased taxes on agricultural imports from the U.S. in retaliation for taxes imposed on Chinese goods. In addition, the national debt rose more than $7.8 trillion during Trump’s first term as government income dwindled due to tax cuts, leading to increased deficits. Critics also argue that the income inequality also widened during Trump’s first term.

Real World Effects

Donald Trump’s recently revealed economic policies, if enacted, may trigger another wave of inflation according to many experts. Scott Lincicome, head of Cato’s Herbert A. Stiefel Center for Trade Policy Studies, believes protectionism policies, aka import taxes, may backfire and hurt the American consumer as such policies are likely to raise the prices of goods. According to the Peterson Institute for International Economics, Trump’s tax policy will result in at least $1,700 in increased taxes annually for households in the middle of the income distribution curve. Other economists also agree. Erica York, a senior economist at the Tax Foundation, believes that Trump’s proposed increases in import tariffs will shrink the U.S. economy by 0.7% and eliminate more than 500,000 jobs from the economy. The only hope is that a reduction in corporate taxes will be sufficient to mitigate this negative impact.

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Dilantha DeSilva

Seasoned markets reporter and news editor

Dilantha is a former buy-side equity analyst who now contributes to Seeking Alpha, GuruFocus, TipRanks, and ValueWalk. He is the founder of Beat Billions, a premium investment research subscription service on Seeking Alpha’s Marketplace. He has appeared on CNBC and Bloomberg to discuss stock markets and the global economy.