What Trump 2 would mean for the US economy – 03/01/2024 – Market

There is much to fear about another Donald Trump term: a threat to US democracy; the possible abandonment of traditional allies in Europe and other regions; the approach of dictators like Vladimir Putin; and the danger it poses to our strong economy.

Our economy? Yes. While Trumponomics 1 had major flaws (like the tax cuts for corporations and the rich that increased the deficit), the idea of ​​Trumponomics 2 is scary.

While Trump has not yet released a formal plan, the unchanging conclusion based on what has leaked from his campaign speeches, monologues and his current group of advisers is that he will pursue a path that will further depart from the Republicans’ traditional global economic approach to enter the populist and isolationist path.

A second Trump term would likely represent a continuation of his simple-minded instincts and what will appeal to his base.

On tariffs, immigration and regulation, Trump would continue the troubling trends of his first term. The United States would sink further into misguided protectionism with new trade wars.

Companies and the richest would be enriched with lower taxes and increasingly free from supervision. Legal immigration would be reduced. And we would continue to emit carbon dioxide into the atmosphere while intentionally sabotaging our thriving clean energy sector.

It’s a prospect that worries even some businesspeople, who generally liked Trump’s first-term economic program, while expressing distaste for his personal characteristics.

Now, executives are less fond of his economic plans (particularly the international elements) and loathing the individual — while being repelled by what they perceive as the Biden administration’s anti-business stance.

At the top of my list of concerns about a second Trump term is an even more protectionist approach to trade than he put into practice during his four years in office.

Trump never understood that, overall, trade can raise living standards and create jobs.

In his first term, Trump imposed tariffs on items ranging from steel to washing machines that, according to economic studies, raised consumer prices and ultimately eliminated American jobs, in part because other countries retaliated with their own tariffs.

And the inflation that voters are worried about now could get much worse, given that Trump wants to step up with 10% tariffs on imports across the board (and even higher tariffs on countries that retaliate), up from an average of 2% currently.

This measure alone could raise the overall price level by about 2 to 3 percentage points.

Furthermore, there is an even stronger attack on trade with China. No one can deny that China pursues aggressively protectionist policies. But Trump’s medicine could harm us as much as — if not more than — the Chinese.

In addition to ending China’s most favored country status, which would raise tariffs on many Chinese goods to up to 40%, it would impose direct bans on some products, including electronics, steel and pharmaceuticals.

Obtaining these items elsewhere in the world in large volumes could be difficult, if not impossible, and substitutions would certainly increase costs for the consumer.

On another isolationist front, immigration remains one of Trump’s key issues. We certainly need to control our borders. That said, reducing the number of new legal arrivals — Trump’s website suggests well over half — and restricting work permits for all undocumented immigrants would hurt us economically.

With unemployment at 3.7%, the United States has few workers, not many.

And with the low fertility rate and the baby boomer generation retiring, this worker shortage will only increase. To simply maintain our population growth rate of the past two decades, we would need to increase our legal immigrant intake to about 4 million per year, up from approximately 1 million today.

A less quantifiable measure, immigrants have contributed greatly to our economic success, from filling entry-level jobs, pioneering some of our most important innovations, and even leading large corporations.

Whoever wins the election will quickly face important tax decisions, as many provisions of Trump’s Tax Cuts and Jobs Act expire at the end of next year. The law gave most of its tax benefits to corporations and wealthy Americans.

And contrary to the Trump administration’s promises, it never came close to paying for itself through increased economic activity. With our persistently high budget deficit (approaching $2 trillion annually), do we really want to spend $3.4 trillion to extend benefits for a decade?

Another Trump term would almost certainly bring an attack on a signature achievement of the Biden administration, the Inflation Reduction Act [Inflation Reduction Act].

This (inappropriately named) law has unleashed a flood of new energy projects that will significantly drive the reduction of our fossil fuel emissions.

Trump would go in the opposite direction, promising to repeal many provisions related to clean energy and proclaiming at rallies that he would encourage energy companies to drill wells.

More generally, Trump wants to reshape the entire government in his image, increasing the potential for unfortunate consequences, from corporations running amok to corruption going unpunished.

He promised to drastically reduce federal regulations, promising (as he did in his first term) to remove two rules for every new rule imposed.

Additionally, he wants to strip independence from key agencies like the FTC [órgão regulador da concorrência nos EUA] and the FCC [que fiscaliza as telecomunicações] to centralize —and politicize— his power in the White House.

He also plans to subject all civil servants to a political test and promises to reduce those he described as “rebellious bureaucrats”.

This explicit politicization of critical government functions could allow Trump to follow his whims. In 2017, he reportedly wanted to block AT&T’s acquisition of TimeWarner because he didn’t like CNN.

He also repeatedly told his chief of staff John Kelly that he wanted his perceived enemies to be investigated by the IRS [Receita Federal dos EUA].

As for monetary policy, expect a war with the Federal Reserve. Trump nominated the current president, Jerome Powell, but quickly turned on him, calling him an “enemy” for acknowledging the deleterious effects of the president’s trade war in a speech.

Trump has also routinely criticized the Fed’s interest rate hikes, which have helped reduce our post-Covid inflation.

Powell’s term expires in 2026, which would give Trump the chance to nominate a more compliant Fed chairman — perhaps someone who matches his passion for easy money that would stimulate the economy in the short term but risk renewed inflation.

Speaking of employees, Trump would be unlikely to attract a capable economic team that could curb his worst instincts. I doubt moderate advisers like Gary Cohn, the 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 would be the overall economic impact of another Trump term? Irresponsible monetary and fiscal stimulus that could boost the economy at the expense of higher inflation. Prices that would be raised by Trump’s protectionist trade policies. All of this would ultimately lead to the elimination of jobs.

Perhaps Trump will be deterred by a narrow victory. And Democrats maintaining control in at least one house of Congress would provide at least partial control.

Yet it’s an unpleasant prospect, one of the many reasons why Americans, including corporate executives, should greatly fear Trump’s return to the White House.