Trumponomics
Donald Trump’s economic strategy is unimaginative and incoherent
“IF YOU want to test a man’s character, give him power.” To those sitting across the
Resolute desk from Donald Trump, Abraham Lincoln’s dictum was less than reassuring. In his first interview with
The Economist since taking office, which was dedicated to economic policy and took place five days before the sacking of FBI director James Comey (see
article), Mr Trump already seemed altered by the world’s most powerful job. The easy charm he displayed in his comfortable den on the 26th floor of Trump Tower when interviewed during last year’s campaign had acquired a harder edge. The contrast then visible between solicitous private Trump and public Trump, the intolerant demagogue of his rallies, was a bit less dramatic. Perhaps his advisers—including Gary Cohn and Steve Mnuchin, both of whom were in attendance in the Oval Office, and Jared Kushner, Reince Priebus, and Vice-President Mike Pence, who drifted in for parts of the interview—are succeeding in their effort to keep the freewheeling president to a more precise schedule. When it comes to the president’s economic policy agenda, however, it seems only one voice counts: Mr Trump’s.
Is there such a thing, we asked the president at the outset, as “Trumponomics?” He nodded. “It really has to do with self-respect as a nation. It has to do with trade deals that have to be fair.”
That is an unusual priority for a Republican president, but not for Mr Trump. The president has argued opposing sides of most issues over the years. But in his belief that America’s trade arrangements favour the rest of the world he has shown rare constancy. That makes Mr Trump’s apparent lack of interest in the details of the trade arrangements he fulminates against all the more astonishing. At one point he ascribed the faults he finds with the North American Free-Trade Agreement (NAFTA) to American officials being in a perpetual minority on its five-member arbitration panel: “The judges are three Canadian and two American. We always lose!” But an American majority on any given panel is as likely as a Canadian one.
His feelings about the failure of America’s trade regime (see
article) show how opportunism and gut feeling tend to guide Mr Trump’s thinking. For almost half a century, he has sold himself a master negotiator. Rubbishing the government’s dealmaking record (which he, disdainful of geopolitics, reduces to the zero-sum terms of a property transaction) is part of that shtick. He is not merely cynical, however. An outsider who clung to memories of his father’s building sites in New York’s outer boroughs long after he made it in Manhattan, Mr Trump appears not merely to understand, but to share, the unfocused resentment of globalisation, and its hoity-toity champions, harboured by many working-class Americans.
The result is an emotional and self-regarding critique of America’s imperfect but precious trade architecture that appears largely waterproofed against economic reality. Having been recently persuaded not to withdraw America from NAFTA—a bombshell he had planned to drop on the 100th day of his presidency, April 29th—Mr Trump now promises a dramatic renegotiation of its terms: “Big isn’t a good enough word. Massive!”
Among Mr Trump’s economic advisers, perhaps only Peter Navarro, an economist with oddball views, and Stephen Bannon, the chief strategist, are outright protectionists. Most are nothing of the sort. Mr Mnuchin, the treasury secretary, and Mr Cohn, the chief economic adviser, are former investment bankers and members of a White House faction led by Mr Kushner, the president’s son-in-law, known as the globalists. So it is a sign of the issue’s importance to Mr Trump that all his advisers nonetheless speak of trade in Trumpian terms. “I used to be all for free trade and globalisation,” says an ostensible globalist. “I’ve undergone a metamorphosis.” Kafka, eat your heart out.
Notwithstanding the president’s concern for national pride, the main aim of Trumponomics is to boost economic growth. On the trail, Mr Trump sometimes promised an annual growth rate of 5%; his administration has embraced a more modest, though perhaps almost as unachievable, target of 3%. This makes Mr Trump’s ambition to mess with America’s trade arrangements all the more obviously self-defeating. A restrictive revision of NAFTA, an agreement that has boosted trade between America and Mexico tenfold, would dampen growth.
Toothsome morsels
Trumponomics’ other main elements are familiar supply-side tools. The most important, deregulation and tax reform, have been Republican staples since the Reagan era (see timeline). They are much needed; but they also need to be done well. There are reckonedto be 1.1m federal rules, up from 400,000 in 1970. Mr Trump has signed an order decreeing that federal agencies must scrap two for every new one they issue, which is laudable. He has also appointed as director of the Environmental Protection Agency a climate-change sceptic, Scott Pruitt, who appears not to believe in regulating industrial pollution, which is not. “I’ve cut massive regulations, and we’ve just started,” Mr Trump says.
The tax code, similarly, is so tangled that America has more tax preparers—over 1m, according to a project at George Washington University—than it has police and firefighters combined. The president promises to restore sanity by reducing income-tax rates and cutting corporate-tax rates to 15% while scrapping some of the myriad deductions to help pay for it. “We want to keep it as simple as possible,” he says.
A fourth element, infrastructure investment, is more associated with the Democrats, and equally desirable. Mr Trump and his advisers have promised anywhere between $550m and a trillion dollars to make America’s “roads, bridges, airports, transit systems and ports…the envy of the world”. A fifth ambition, to enforce or reform immigration rules, is rarely spoken of by him or his team as an economic policy. But if Mr Trump’s promises in this area are credible, it should be. He has launched a crackdown on illegal border crossings and also made it easier to deport undocumented workers without criminal records—a category that describes around half of America’s farm workers. Again, Mr Trump’s economic nationalism and his promises of redoubled growth are at odds.
Trumponomics, despite some tasty ingredients, is guilty of worse than incoherence. It also suggests a dismal lack of attention to the real causes of the economic disruption imposing itself on Mr Trump’s unhappy supporters. Automation has cost many more manufacturing jobs than competition with China. The winds of change blowing through retailing will remove far more relatively low-skilled jobs than threats aimed at Mexico could ever bring back (see
article).
Mr Trump never mentions the retraining that millions of mid-career Americans will soon need. He appears to have given no thought to which new industries might replace those lost jobs. Nowhere in his programme is there consideration of the changes to welfare that a more fitfully employed workforce may require. Eyeing the past, not the future, he fetishises manufacturing jobs, which employ only 8.5% of American workers, and coal mining, though the solar industry employs two-and-a-half times as many people. Growth is good; but Trumponomics is otherwise a threadbare, retrograde and unbalanced response to America’s economic needs.
Where is this heading? The S&P500 has gained 12% since Mr Trump’s election, suggesting that investors believe his promises of growth and discount his crazier rhetoric. In recent weeks he has seemed to vindicate that confidence, preferring to moderate his views than pay a price for them. He was persuaded not to withdraw from NAFTA after his agriculture secretary, Sonny Perdue, presented him with a map showing that many of the resultant job losses would be in states that voted for him. Where once he railed against legal, as well as illegal, immigration, he appears to have been persuaded of the economic damage restricting the influx would do. Asked whether he still meant to curb legal immigration, he protested: “No, no, no, no!...I want people to come in legally...We also want farm workers to be able to come in...We like those people a lot.”
Bitter aftertaste
Yet this drift to pragmatism should not be relied on. On trade, especially, Mr Trump has deeply held views, sweeping powers, a history of intemperance and a portfolio of promises he thinks he should keep. The fact that he has not yet fired the self-styled custodian of those campaign promises, Mr Bannon, who is at war with the president’s treasured son-in-law, Mr Kushner, is emblematic of that bind.
Another reason for caution is that Mr Trump is losing control over those parts of his economic agenda, including tax reform and infrastructure spending, where he is largely reliant on Congress. Given how little of anything gets done on the Hill these days, this looks like another check on the president—one for which his own behaviour is additionally to blame. To pass ambitious tax or infrastructure bills would require support from the Democrats. Yet the president rarely misses an opportunity to insult the opposition party, including his predecessor, Barack Obama, whose health-care reform and regulatory legacy he is trying to dismantle. It is thus hard to imagine the Democrats voting for anything in Mr Trump’s agenda—and there are limits, the president concedes, to his willingness to persuade them to. Would he, for example, release his tax returns, as the Democrats have demanded, if they made that the price of their support for tax reform? He would not: “I think that would be unfair to the deal. It would be disrespectful of the importance of this deal.”
The result looks likely to be no serious infrastructure plan and tax cuts which will be temporary and unfunded—the sort that Republicans, when in power, tend to settle for, and to which Mr Trump already appears resigned. Where once he claimed to see bubbles in the economy, he now says that a dose of stimulus is what it needs. If Mr Trump’s past brittleness under pressure is a guide, such setbacks, far from cowing him, could spur him to bolder action in fields where he sees less constraint.
The extent of his rule-cutting already looks unprecedented. If Mr Bannon has his way, it will put paid not merely to outworn regulations, but to whole arms of the federal bureaucracy, perhaps including the EPA. Whether he succeeds in that will probably be determined by the courts. How far the administration acts on Mr Trump’s trade agenda is harder to predict, though likelier to define it.
Perhaps Mr Trump will continue to restrain himself in this regard. As the pressures of office mount, so the reasons to avoid a damaging trade war will multiply. China might offer more help against North Korea; or Mexico some sort of face-saving distraction from the border-wall Mr Trump has promised but is struggling to build. Don’t bet on it, though. Mr Trump is a showman as well as a pragmatist. His hostility to trade is unfeigned. And his administration, as the sacking of Mr Comey might suggest, could yet find itself in such a hole that a trade war looks like a welcome distraction.
