What are Trump’s economic policies?

The American economy is growing at a steady rate of 2 per cent per annum. This rate is less than the rate during the 1950-2000 period when growth was over 3 per cent

The impact of Trump’s economic policies on the American economy will be to increase inflation, raise interest rates, and cause the dollar to get stronger.  Wages will increase but not much faster than inflation; unemployment will remain low.  The Government deficit will increase.  The impact on the world economy outside the United States will be to slow economic growth, reduce international trade and increase inflation.
Trade policies proposed by Trump will raise barriers to imports, particularly from China.  However, the immediate impact on GDP will be very limited [all analytical studies of trade impact of tariff changes show very small changes in GDP.]  But the inevitable tighter monetary policy may have an adverse impact on the U.S. economy.
Is the American economy at full employment?  How fast can the American economy grow?  At this time, January 2016, the American economy is at close to full employment.  By full employment we mean that at this level inflation and expectations of inflation will be close to zero.  Reducing unemployment further will raise inflation.  Empirical studies using the standard definition of unemployment suggest this concept of full employment corresponds to 4-5% unemployment.  
The American economy is growing at a steady rate of 2% per annum.  This rate is less than the rate during the 1950-2000 period when growth was over 3%.  What is surprising is that as unemployment has approached the low rate corresponding to full employment the growth rate of the economy has not increased nor decreased.  Growth of GDP equals the rate of increase of the labor force plus the growth of productivity.  The rate of growth of the labor force once full employment is reached is very low given the aging population of the United States.  Raising productivity is a mystery.  No one really knows why the growth of productivity rises and falls.  It is unlikely that there will be a dramatic  change in productivity.  The Trump claims of achieving sustained growth rates of 3-4% of GDP are assessed as very unlikely by most economists.  Trump claims that lower taxes and reduced regulatory regimes will raise productivity growth.  Lower taxes on companies may induce a willingness to invest, but only if there are opportunities to make reasonable profits.  Indeed for companies the taxes actually paid are low so changing the nominal tax rate will have limited impact.  Reduced taxes on labor may well have persons reduce their willingness to work; for example much of the increase of women in the labor force has been in response to the need for more money for the household.  Lower taxes on husband’s earnings may reduce the willingness of women to enter the labor force.  In any event the income taxes imposed on the poor people are zero.  Trump’s tax program’s impact on the magnitude of economic growth is obscure although it will be positive in the short run.  
Reduction in regulations is a good thing in general.  The question is what do these regulations cover that Trump wants to cancel?  Worker safety?  Payments for workman’s compensation?  Drugs in the workplace?  Sexual abuse of workers?  What is it that one wants to do away with?  Industrial societies are complex and the regulatory regimes attempt to order this complexity.  No doubt it is overdone and many corrections are needed.  But the connection to productivity increases are limited.  If one removes safety regulation does this raise productivity?  
A realistic picture of the current American economy is it is at full employment and is growing at the rate that can be sustained.  In such a position one expects changes in production and wages to rest on other consideration such as minimum wage laws and the natural growth of productivity.  The income distribution can be changed reducing the share to the top 20% and increasing the share to the bottom 20%.  But this is of course exactly what the political conflict is about.  Trump talks about helping the workers but his actions will help the top 20% but provide little solace for the bottom 20%.  The Trump economic policies are a con game for his supporters.
Let us suppose that he is successful at implementing his program of lower taxes, a large infrastructure program, higher import duties, and increased military expenditures.  These actions will increase aggregate demand in a full employment economy raising the inflation rate and increasing the Government deficit.  The Federal Reserve will react to increased inflation by raising interest rates.  Probably the Fed already expects such increased demand and hence the planned pace of interest rate increases will be greater.  Higher interest rates will restrict demand, falling heavily on consumption of the lower 50% of the income distribution who will find housing and automobiles more expensive.  Investment by the private sector will be reduced by such higher rates, presumably reducing productivity growth. 
Trump’s policies will initially strengthen the dollar by reducing imports through higher tariffs and shift investment towards the domestic market. 
Actions of foreign government in reaction will reduce U.S. exports. Capital will flow into the United States.  The dollar will strengthen leading to reduced exports and the current account deficit will increase.  This increased deficit on the current account will cover the resources needed to fulfill domestic demand at the level the economy is operating.  To the extent the aggregate demand can be shifted to imports it reduced the inflationary impact.  If actions are taken against imports through trade restrictions then the impact is inflationary.
The current mixture of Trump economic policies do not add up to a coherent program to manage the economy.  By the end of four years the economy will likely fall into recession as the Federal Reserve attempts to get the inflation under control.
The Trump attack on globalization and free trade will undermine the growth of the world economy.  This foolish approach is a “flat earth” approach.  Trump knows best and is prepared to ignore the results of years of research and analysis of economists as to the benefits to free trade.
Whenever there is a movement towards free trade through reduction of tariffs and non-tariffs barriers workers will lose their jobs in industries where imports displace domestic production.  It is essential that these workers be retrained and new employment opportunities found.  This necessary effort was neglected in the United States.  As a consequence workers adjustment was slow and not very satisfactory; eventually most obtained jobs but the wages were lower.  Indeed as growth between low income and high income countries expands the wage rates in the high income countries get pushed down and those in low income countries rise.  At the same time the return to capital in the low income countries fall and in the high income countries rises.   This describes exactly what has been going on in the world.  Trump’s attempts to derail this process will fail.  
In conclusion, if Trump implements his policies [ regulatory forbearance, tax reductions, import restrictions, infrastructure program, and increased defense expenditures] then  there will be inflationary pressures, higher interest rates, and a greater government deficit.  The dollar will become stronger.
These effect taken together will cause great disturbance in the world economy, with higher US interest rates driving down the value of the Euro and the Yen.  Reduced world exports will have a negative impact on Germany, Japan, and China.   How severe depends on the extent to which Trump is successful at implementing his policies.   
    The writer is an economist 

 

 

What are Trumps economic policies?

The American economy is growing at a steady rate of 2 per cent per annum. This rate is less than the rate during the 1950-2000 period when growth was over 3 per cent

The impact of Trumps economic policies on the American economy will be to increase inflation, raise interest rates, and cause the dollar to get stronger. Wages will increase but not much faster than inflation; unemployment will remain low. The Government deficit will increase. The impact on the world economy outside the United States will be to slow economic growth, reduce international trade and increase inflation. Trade policies proposed by Trump will raise barriers to imports, particularly from China. However, the immediate impact on GDP will be very limited [all analytical studies of trade impact of tariff changes show very small changes in GDP.] But the inevitable tighter monetary policy may have an adverse impact on the U.S. economy. Is the American economy at full employment? How fast can the American economy grow? At this time, January 2016, the American economy is at close to full employment. By full employment we mean that at this level inflation and expectations of inflation will be close to zero. Reducing unemployment further will raise inflation. Empirical studies using the standard definition of unemployment suggest this concept of full employment corresponds to 4-5% unemployment. The American economy is growing at a steady rate of 2% per annum. This rate is less than the rate during the 1950-2000 period when growth was over 3%. What is surprising is that as unemployment has approached the low rate corresponding to full employment the growth rate of the economy has not increased nor decreased. Growth of GDP equals the rate of increase of the labor force plus the growth of productivity. The rate of growth of the labor force once full employment is reached is very low given the aging population of the United States. Raising productivity is a mystery. No one really knows why the growth of productivity rises and falls. It is unlikely that there will be a dramatic change in productivity. The Trump claims of achieving sustained growth rates of 3-4% of GDP are assessed as very unlikely by most economists. Trump claims that lower taxes and reduced regulatory regimes will raise productivity growth. Lower taxes on companies may induce a willingness to invest, but only if there are opportunities to make reasonable profits. Indeed for companies the taxes actually paid are low so changing the nominal tax rate will have limited impact. Reduced taxes on labor may well have persons reduce their willingness to work; for example much of the increase of women in the labor force has been in response to the need for more money for the household. Lower taxes on husbands earnings may reduce the willingness of women to enter the labor force. In any event the income taxes imposed on the poor people are zero. Trumps tax programs impact on the magnitude of economic growth is obscure although it will be positive in the short run. Reduction in regulations is a good thing in general. The question is what do these regulations cover that Trump wants to cancel? Worker safety? Payments for workmans compensation? Drugs in the workplace? Sexual abuse of workers? What is it that one wants to do away with? Industrial societies are complex and the regulatory regimes attempt to order this complexity. No doubt it is overdone and many corrections are needed. But the connection to productivity increases are limited. If one removes safety regulation does this raise productivity? A realistic picture of the current American economy is it is at full employment and is growing at the rate that can be sustained. In such a position one expects changes in production and wages to rest on other consideration such as minimum wage laws and the natural growth of productivity. The income distribution can be changed reducing the share to the top 20% and increasing the share to the bottom 20%. But this is of course exactly what the political conflict is about. Trump talks about helping the workers but his actions will help the top 20% but provide little solace for the bottom 20%. The Trump economic policies are a con game for his supporters. Let us suppose that he is successful at implementing his program of lower taxes, a large infrastructure program, higher import duties, and increased military expenditures. These actions will increase aggregate demand in a full employment economy raising the inflation rate and increasing the Government deficit. The Federal Reserve will react to increased inflation by raising interest rates. Probably the Fed already expects such increased demand and hence the planned pace of interest rate increases will be greater. Higher interest rates will restrict demand, falling heavily on consumption of the lower 50% of the income distribution who will find housing and automobiles more expensive. Investment by the private sector will be reduced by such higher rates, presumably reducing productivity growth. Trumps policies will initially strengthen the dollar by reducing imports through higher tariffs and shift investment towards the domestic market. Actions of foreign government in reaction will reduce U.S. exports. Capital will flow into the United States. The dollar will strengthen leading to reduced exports and the current account deficit will increase. This increased deficit on the current account will cover the resources needed to fulfill domestic demand at the level the economy is operating. To the extent the aggregate demand can be shifted to imports it reduced the inflationary impact. If actions are taken against imports through trade restrictions then the impact is inflationary. The current mixture of Trump economic policies do not add up to a coherent program to manage the economy. By the end of four years the economy will likely fall into recession as the Federal Reserve attempts to get the inflation under control. The Trump attack on globalization and free trade will undermine the growth of the world economy. This foolish approach is a flat earth approach. Trump knows best and is prepared to ignore the results of years of research and analysis of economists as to the benefits to free trade. Whenever there is a movement towards free trade through reduction of tariffs and non-tariffs barriers workers will lose their jobs in industries where imports displace domestic production. It is essential that these workers be retrained and new employment opportunities found. This necessary effort was neglected in the United States. As a consequence workers adjustment was slow and not very satisfactory; eventually most obtained jobs but the wages were lower. Indeed as growth between low income and high income countries expands the wage rates in the high income countries get pushed down and those in low income countries rise. At the same time the return to capital in the low income countries fall and in the high income countries rises. This describes exactly what has been going on in the world. Trumps attempts to derail this process will fail. In conclusion, if Trump implements his policies [ regulatory forbearance, tax reductions, import restrictions, infrastructure program, and increased defense expenditures] then there will be inflationary pressures, higher interest rates, and a greater government deficit. The dollar will become stronger. These effect taken together will cause great disturbance in the world economy, with higher US interest rates driving down the value of the Euro and the Yen. Reduced world exports will have a negative impact on Germany, Japan, and China. How severe depends on the extent to which Trump is successful at implementing his policies. The writer is an economist