Speculating about how the economy will fare under a second term of President Donald Trump normalizes the candidacy of a deeply flawed man. But if he is elected, we will all have to live in Trump’s world. Therefore, it seems important to talk about the economic outlook under President Trump’s next term.
I spoke with several of President Trump’s economic advisers this week. They told me that a Trump 2.0 administration would look a lot like a Trump 1.0 administration. The difference, however, is that you are more disciplined and want to be more effective.
President Trump has said he wants to fully extend the 2017 Tax Cuts and Jobs Act, with parts of it expiring at the end of 2025. The law lowered corporate tax from 35% to 21% and also lowered personal tax rates. He hasn’t said much about how he would offset the revenue cuts with spending cuts, aside from seeking to eliminate clean energy spending under the Inflation Control Act, which is ineffective.
President Trump’s anti-inflation plan focuses on increasing the supply of goods and services. For example, increasing domestic oil production to lower fuel prices or relaxing economic regulations so that companies can produce more at lower costs. Expectation: If President Trump can bring down inflation, the Federal Reserve will have confidence to lower interest rates and boost economic growth.
President Trump’s trade plan is to use tariffs and the threat of tariffs to encourage other countries, especially China, to lower barriers to American products and curb their own export subsidies. The president’s policy on immigration will deter the illegal kind, not the legal kind, advisers said.
Presented this way, Trump’s platform sounds like John McCain’s or Mitt Romney’s. But the reality is that when it comes to the economy, Trump 2.0 is just as populist as Trump 1.0, if not more so, and could very well receive a bashing from the convention. First of all, this time it’s not someone like Gary Cohn, the centrist Democrat and former number two on Goldman Sachs’ first board, who this time has 100% control over Cabinet members and other advisers. He will begin his term as a member of the team. He served as chairman of the National Economic Council until President Trump replaced him with Larry Kudlow, a more like-minded television economic news host.
It’s hard to say how the economy will fare under Trump’s four more years in office, because so many things can happen that are not under his control. Of course, the same applies if President Biden is re-elected.
One bipartisan perspective comes from the financial world, where the emphasis is on making the right guesses rather than helping or hurting any particular candidate.
German financial giant Allianz predicted in a report last month that inflation would rise and the budget deficit would widen under the Trump administration than it would have without policy changes. How much will depend on Congressional action, the report said.
Similarly, UK-based forecasting firm Oxford Economics said this month that under a “limited Trump” scenario (in which Mr. Trump’s agenda would be constrained by Congress, the economic agenda, and the courts), inflation would be He predicted that gross domestic product (GDP) would be adjusted, although it would be slightly higher. Inflation will also be slightly higher. The University of Oxford found that under a “full-fledged Trump” scenario, in which the president gets everything he wants, inflation would be even higher, with inflation-adjusted gross domestic product “down by up to 1.8% compared to the baseline.” “I will,” he said. .
The rationale for Allianz and Oxford is similar. Both assume that spending cuts will be limited. Allianz noted that the budget deficit was widening during President Trump’s first term even before the coronavirus pandemic. Significant tax cuts in 2017 reduced the share of federal government revenue in gross domestic product. What’s even more surprising is that despite President Trump’s pledge to cut the budget, spending as a share of GDP has increased rather than decreased.
Allianz and Oxford predict that higher tariffs will contribute to inflation. President Trump has talked about using tariffs to punish foreign producers, but most of the costs would be borne by U.S. buyers, as import prices would rise. (As I wrote on Wednesday, President Trump expressed interest in imposing 10% tariffs on almost all imports last year.) According to the Washington Post, President Trump expressed interest in imposing 10% tariffs on nearly all imports. The possibility of imposing a special tariff of 60% is also being discussed with aides.
Of course, those forecasters could be wrong. President Trump’s advisers certainly think so. They point out, for example, that inflation remained low even after the Trump tariffs went into effect.
“If you liked what Trump did on the economy the first time, you’ll like him the second time,” said Stephen Moore, an unpaid senior economic adviser to the Trump campaign. “He wants to go all in. He feels like the clock is ticking.”
“The difference between Trump and Reagan, and I worked for both of them, is that Trump is not particularly ideological,” Moore said. “Reagan was ideological. Trump is a businessman. When you talk to him about issues, he speaks with his common sense.”
Moore said Trump doesn’t always act on his threats to raise tariffs and uses them as leverage “to get other countries to do things that are in our national interest.” Moore’s theory is that tariffs under the Trump administration may not be much higher than under the Biden administration.Then again, Trump once tweeted“I’m in charge of customs.”
President Trump has talked about using the power of foreclosure to control the budget deficit. Seizure is when the president withholds funds appropriated by Congress from their intended use, and it feels like Mr. Trump’s actions. However, Congress may respond to the usurpation of its powers.
Politico reported this week that Robert Lighthizer, who served as U.S. trade representative in the Trump administration, discussed ways to weaken the dollar to make American products more competitive. Trump himself has not been vocal about the issue, but in 2019 he tweeted that “we should stand together” against what he called currency manipulation by China and Europe.
As for tariffs, President Trump’s steel and aluminum tariffs did not significantly increase prices for domestic buyers, according to a report from the U.S. International Trade Commission. (According to the report, the tariffs increased the price of steel by about 2.4% and aluminum by about 1.6%, but those costs were probably swallowed almost entirely by importers rather than end consumers.)
How things play out if Mr. Trump is elected will largely depend on which party controls the House and Senate, and who occupies key executive branch positions. “Human resources are the alpha and omega of this whole political movement to effect change,” Paul Dunnes, who directs the Heritage Foundation’s 2025 presidential transition project, told me.
Scott Bessent, an unofficial economic adviser to Mr. Trump who runs the hedge fund Key Square Capital Management, said Mr. He said it exacerbated inequality by boosting stock holdings. “I fear that with these outrageous policies, we are heading towards a repeat of the French Revolution,” he told me.
On the other hand, Bessent is correct that wealthy people are doing better under the Biden administration. On the other hand, I have no idea how inequality will decline under President Trump, who wants to extend tax cuts that have primarily benefited the wealthy.
In 2016, the stock market soared after Trump was elected (after a chaotic opening night) as investors got excited about the prospect of tax cuts and deregulation. Since it was an unexpected victory, the reaction was great. If he wins again, investors may be less surprised and the reaction may be less positive. Investors may conclude that the Federal Reserve will keep interest rates high to offset President Trump’s excessive stimulus.
I agree with Moore that if you liked the way President Trump is managing the economy the first time, you’ll probably like it again. However, in a sense, the details are secondary. The fact that we were able to have this conversation less than three years after January 6, 2021 is already a huge victory for Trump.
written by the reader
About the Biden 2nd Term Newsletter: I’m retired, and most retirees I talk to feel they were better off financially under the Trump administration. Perhaps working people are keeping up with inflation through pay increases, while retirees are falling behind. I think the only advantage we have is that she isn’t looking to borrow a lot more than 7% to buy a house.
mike johnston
palm coast, florida
You’ve written about the need for new political technologies. The political techniques needed in the United States are used in most developed democracies. Proportional representation provides for majority voting and prevents small changes in election results from causing fundamental reversals in public policy. In a country of more than 330 million people, with fewer than 50,000 voters in several key states, large policy swings make it impossible to address wicked problems like climate change.
john gear
Olympia, Washington.
Thomas Hale’s ideas for dealing with long-standing problems sound awfully like the end of democracy and the new rule of tyrannical experts. You can definitely count me out! I’m sure I’m not the only one who doesn’t want to step into that darkness willingly.
Lawrence Scaduto
brooklyn
The inability to accurately predict inflation using the Phillips curve may be due to the fact that the production process has become more complex and dependent on more variables. These variables are also interdependent and may not be fully understood at this time. Hopefully, some young, bright, greedy economist will reconsider the premises and assumptions of the Phillips Curve and enrich it.
Dimitris Octapodas
Pyrgos, Greece
Failure to take corporate greed into account is why economists’ assessments of inflation are inadequate. Look at the record profits for grocery stores over the past two years.
Ally Third
Dearborn, Michigan.
Companies pay exorbitant amounts to CEOs and shareholders, so they have to continually raise prices. And no matter how much you earn, you basically pay no taxes at all. If we do nothing about this, the gap between them and us will only widen.
Dennis Schauerman
Media, Pennsylvania
quote of the day
“Honest workers dig coal for about 70 cents a day, but the president digs abstract coal for about $70 a day. What a terrible inequality there is. Why would a president propose abolishing the office of president? He would not, and he should not.”
— Abraham Lincoln, Speech to the House of Representatives on Internal Improvements (June 20, 1848)