The consequences of Donald Trump’s economic agenda will be costly for the Middle Class and will diminish America’s global leadership. Trump remains in campaign mode, touting a nationalist “America-first” economic agenda at the expense of the working Americans who supported his political ascent. As Trump engages his counterparts in Sicily for the G7 Summit, he must come to realize that shifting away from free trade, globalization, and open markets will damage America’s leadership and influence around the world.
Donald Trump ran for president as a man of the people, who was going to fight for those who were left behind – but everything we’re hearing about his federal budget says exactly the opposite. The President’s budget request reverses numerous campaign promises, slashing Medicaid, children’s health insurance, food assistance programs like Meals on Wheels, and even AIDS treatment. At a time when our country has the highest poverty rate among all advanced nations, to include more than 1 in 5 American children, cutting programs that impact poor Americans is not Presidential leadership, it’s cruel. Reaching bipartisan consensus in balancing the budget is not possible without releasing details to raise revenues, addressing social security, and reforming Medicare.
Trump’s campaign promises may have worked for his political base, but as President, he has not offered a compelling plan to boost economic growth and stability. The U.S. will need a more dynamic policy stimulus that leverages American ingenuity and its entrepreneurial spirit – not short-sighted schemes that dramatically increase the wealth of the top 1 percent.
At the G7 Summit, he will be encouraged to reverse his pledge to back out of the UN Paris agreement on climate change, his view of the role of China in the world, along with views on international trade generally. For the first time, the United States — a moral beacon of democracy and free markets — is led by a President with an established record of volatility, uncertainty and impulsiveness; a President who views the world as a zero sum game.
Trump has promised to renegotiate trade treaties, and failing that, impose high tariffs on imports. The implications of the President’s present course will not restore workers to a golden age of prosperity and security, but instead deepen the burden felt in Middle America and increase the risk of political conflict. Many economists agree, protectionism is not the way to resolve the slow growth of the U.S. economy and the social disaffection of Americans – important factors which gave rise to Trump. Such a confrontational course will result in higher prices for U.S. consumers and a disruption of global trade that would result in destabilizing the U.S. economy.
Trump’s tariffs would automatically trigger penalties against the U.S. in the World Trade Organization, which would lead to higher tariffs against U.S. exports. The resulting turmoil would be severe for American business and employment. China, on the other hand, would emerge relatively unscathed due to its $3 trillion in foreign currency reserves. Further, Trump’s potential abandonment of existing U.S. trade agreements would accelerate China’s displacement of America as the world’s leading economic power.
China is not the only winner of Trump’s economy. Big corporations that do not export from the U.S. would benefit because they already produce things abroad for sale in foreign markets. But Americans would be disadvantaged as they would have to pay more for just about everything. Choking off trade won’t result in more good jobs in America. Trump says he will bring back manufacturing to the U.S. But many of today’s domestic factories are automated. This also applies to products that are manufactured in China, where numerical controlled machine tools and robots are replacing humans.
If Trump follows through on his economic and trade pledges made during the campaign, the Federal Reserve will need to adapt by adjusting the money supply in reaction to his fiscal policies. Already predicting an acceleration in inflation, higher interest rates, or some combination of the two, Federal Reserve Chair Janet Yellen may be forced to expedite these changes if generous fiscal spending overheats the labor market and leads to inflation significantly above the central bank's 2 percent annual target.
Further, given the likelihood of additional trade protectionism and measures to remove immigrant workers, the increase in inflation and long-term interest rates could be quite dramatic. Higher interest rates will undercut construction jobs and increase the value of the dollar, leading to larger trade deficits and fewer manufacturing jobs — just the opposite of what Trump promised. The impact on financial markets will be disruptive, regardless of whether the Fed aggressively tightens monetary policy to pre-empt rising prices, allowing inflation to accelerate.
Trump is all about reducing regulation, but he offers no plans to mitigate important economic trends which affect America’s labor. He is willing to give lots of room for maneuver to powerful corporations. That could be good for corporate profits, but it will reduce the bargaining power of workers and undermine the long-term growth potential of the American economy.
America is a part of globalization no matter whether we like it or not. We shouldn’t reject this reality but instead work to ensure that the American people are able to adapt and compete in the evolving global markets. Instead of reverting to his own brand of anti-trade populism, which would hurt the U.S. economy, the President should implement common sense free market approaches to enhance the long term prospect of our economic security. The implications of Trump’s economic agenda will make the rich richer at the expense of the American worker, propelling the interests of rising rivals like China.