Trumponomics: Why It Will Fail

It's no secret that the man who swept the rust belt with his trade message, demolished the establishment, and took over Washington did it by running a conventional campaign. Donald Trump proved the cynics wrong at every turn. He proved the polls wrong and took down Hillary Clinton by painting the rust belt red for the first time since 1984. The Republicans swept the White House in a moderate landslide and retained control of both houses of Congress. Donald Trump's protectionist, nationalistic, and populist form of politics is now what will determine policy making for the next four years, but this is not a good thing. In order to understand the fiscal policies of the next four years we have to understand the motives behind them, and they are nationalism and protectionism. Nationalism since the end of WWI has been a proven failure. Protectionism leads to higher prices, less competitiveness, and a weaker economy. His fiscal policies will be dubbed Trumponomics.

First, the national debt is expected to go over the $20 trillion dollar mark this year. Estimates show that Trump's plans will increase the national debt to $38 trillion dollars when it's all said and done after he leaves office. The deficit under current budgetary conditions is expected to go over $472 billion dollars in 10 years. We should be at $28 trillion dollars in national debt by 2025. In order to fix the economic crisis that is looming he'd need to cut spending drastically by 2/3rds in or achieve 16% economic growth to not face these disastrous debt and deficit estimates. And the fact that the economy only grew 1.9% in the fourth quarter of 2016 shows that is impossible to reach. That is a number not even China has produced. Average growth is projected to hover around 2% for the next two years according to estimates anyways. Since President Trump has promised to make no changes to entitlements he'd need to cut federal government spending by 93% in order to not face a debt or deficit crisis. That's not feasible under his proposed plans. His policies will add $11.7 trillion dollars to our national debt held by the public.

Second, some of the programs he wants to pay for include a border wall on the southern Mexico border. This would greatly add to our national deficit and debt and damage our relationship with our neighbor to the south. Trump's proposed border wall will cost $15-25 billion dollars. It's a very expensive public works project that he'd either have to raise taxes or borrow more money to pay for it. The President has promised a 20% import tax on Mexico. This will spark a tariff war with Mexico, as they will surly slap us with a tax and hurt our small businesses after we hurt theirs. This will weaken growth and increase prices of goods in Mexico and in the U.S., which will ultimately spark a recession for both of us.

Third, when it comes to trade the President's withdrawal from the Trans-Pacific Partnership will cause China to take our place as the leading trading partner in the world. By closing off our markets to Chinese and Asian goods for cheaper prices and technological advancement we are hurting ourselves in the long run. Trump wants to also impose a 48% tax on Chinese goods, which will institute another tariff war with China and damage our relationship with them and hurt our economy. A trade and tariff war is a recipe for economic disaster. One issue I'd like to bring up is the Chinese Yuan in regards to trade because our trade deficit in 2015 was $367 billion dollars. This exists because our imports exceed our exports. One of the reasons is because China held down their currency value up until 2000 to make their goods cheaper to buy from other countries. Much of the items Americans buy are raw materials that are shipped here at a lower cost. The reasons are because China has a lower standard of living and the exchange rate is partially fixed to the dollar. That means American companies can't compete with Chinese prices on goods. As a result, jobs are lost. Tariffs do not work in bringing back jobs especially from China. This has been a proven failure. This will likely not change our trade deficit. The Chinese will need and have been trying to increase their standard of living for years since they understand the Chinese won't accept a lower standard of living forever. Since China's currency is pegged to the dollar it has tried to remain at a rate of 2%. Because Chinese goods are cheaper American companies are not able to compete for them thus you have a trade deficit. That's why companies in America don't export to them. American companies either have to ship jobs overseas or simply go out of business to deal with this problem. Many companies already do this while other American companies have just dried up. As industries have declined so has American competitiveness. President Trump's claim that China artificially keeps down their currency by 15-40% is simply not true. It was true in 2000 when Bill Clinton was President, but that's not the case anymore. The reason is because by 2006 under the Bush Administration Treasury Secretary Hank Paulson convinced the Bank of China through an economic dialogue to strengthen the Yuan’s value by increasing it. Secretary Paulson continued this strategy that was started under Bill Clinton and Obama's Treasury Secretary Jack Lew followed. Between 2000 and 2013 the Yuan has increased 2-3% annually. The Yuan has increased in value by 25% since 2014. Once this happened the Yuan was unpegged from the dollar. But when the People's Bank of China unpegged it it caused the Yuan to plummet because it was over-valued. It was not undervalued as Trump claimed, because if that were the case it would've risen.

Fourth, the repeal of the Affordable Care Act will add $350 billion dollars to the deficit if there is no replacement. Senate Republicans have multiple plans to address this issue, but nothing solid at the moment. All of Trump's proposals will in turn exasperate our economy causing us to sink into recession by the end of the decade if not adequately addressed. The depth of how severe the recession will be is unknown. Instinctually, I would support cutting taxes like the President has proposed and cutting spending. But we can no longer increase spending and cut taxes. That will lead to more budget deficits and a less prosperous future for America. The only way to tackle our economic issues at this point is to cut spending and increase taxes, which is not what the President is proposing. If we don't cut spending and increase taxes to pay off the national debt and deficit it might be too late. It could take decades to reverse the damage and get back on track to growth and prosperity.

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Patrick Murray