Donald Trump's Economic Plan
How President Trump Is Changing the Economy
Republican Donald Trump is the 45th president of the United States. His first term is from 2017 to 2021. Trump's economic plan focuses on "making America great again." He negotiated "the biggest deal of my life" with those voters who felt they had lost the American Dream. Trump's policies follow economic nationalism.
"America First" Energy Plan
On June 1, 2017, Trump announced the U.S. withdrawal from the Paris Climate Agreement. The 195 signatories had pledged to cut their greenhouse-gas emissions to a level that's 26 to 28 percent below 2005 levels by 2025. They agreed to ratchet emissions to zero by 2100. They committed $3 billion to the poorer countries who are most likely to suffer damage from rising sea levels and other consequences of climate change.
The accord's goal is to keep global warming from worsening to 2 C above pre-industrial levels. A 2018 study found that temperatures above that level would pass a tipping point. For example, the Arctic tundra would thaw, releasing 45,000 years' worth of trapped greenhouse gases. It would create catastrophic warming of 5 degrees Celsius or more. Melting glaciers would increase sea levels by 200 feet.
The United States is responsible for 20 percent of the world's greenhouse gas emissions. The other signatories can't reach the accord's goal without U.S. participation.
Trump said he wanted to negotiate a better deal, but leaders from Germany, France, and Italy said the accord is non-negotiable. China and India joined the other leaders in stating they remain committed to the agreement. Some have argued that America's withdrawal from a leadership position creates a vacuum that China will readily fill.
Business leaders from Tesla, General Electric, and Goldman Sachs said Trump's action would give foreign competitors an edge in clean energy industries. U.S. companies will lose government support and subsidies in these industries.
It will take four years to withdraw formally, making it an issue in the 2020 presidential election.
Trump also promised to eliminate the Climate Action Plan and the Waters of U.S. rule. He pledged to allow more drilling on federal lands of shale oil and natural gas.
Trump's plan would worsen climate change. This is also not the right time to add to the U.S. oil supply. Many shale oil companies have gone out of business since 2014 when prices fell to a 13-year low. Prices have since rebounded but would fall again if Trump expands supply. Gas prices would return to the 2016 lows. That's good for consumers but bad for Trump's job creation record.
On October 9, 2017, the Trump administration announced it would repeal the Clean Power Plan. The repeal would withdraw Obama-era limits on carbon emissions at U.S. power plants. That was part of Trump's campaign promise to revive the coal industry while remaining committed to clean coal technology. Trump claimed this would raise wages by $30 billion over seven years.
On August 2, 2018, the Trump administration announced it would allow automakers to keep fuel efficiency standards at 36.9 miles per gallon. It rescinds the Obama administration's deal with automakers to increase to 54 miles per gallon by 2025. It would also revoke states' rights to set their own, more stringent standards. It would increase U.S. oil consumption by half a million barrels per day, increasing greenhouse-gas emissions.
On September 10, 2018, the administration planned to allow oil drillers to emit more methane into the atmosphere.
"Smart Trade, Not Stupid Trade"
Trump's trade policies promote mercantilism. He uses protectionism to defend U.S. industries from foreign competition. His goal is to reduce the U.S. trade deficit. In theory, the wealthier companies then generate higher taxes to fund military growth.
On September 2, 2017, Trump instructed aides to withdraw from the U.S. trade agreement with South Korea. He wants the country to import more U.S. goods.
On January 23, 2017, Trump signed an order to withdraw from further negotiations on the Trans-Pacific Partnership. He promised to replace it with a series of bilateral agreements. As a result, Japan and the EU announced their own trade deal. On July 6, 2017, they agreed to increase Japanese auto exports to the EU and European food exports to Japan.
On August 16, 2017, the Trump administration began renegotiating NAFTA with Canada and Mexico. The North American Free Trade Agreement is the world's largest trade agreement. Trump had threatened to withdraw from NAFTA and hit Mexican imports with a 35 percent tariff.
On January 22, 2018, Trump imposed tariffs and quotas on imported solar panels and washing machines. On March 1, 2018, he announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. Steel users, like automakers, will see higher costs. They'll pass that onto consumers. The stock market fell, as analysts correctly forecast that Trump's actions might start a trade war.
On April 3, 2018, Trump announced 25 percent tariffs on $50 billion in Chinese imported electronics, aerospace, and machinery. The administration wants China to stop requiring U.S. companies to transfer their proprietary technology to Chinese firms. They must do this if they want to gain access to China's market. China retaliated hours later. It announced 25 percent tariffs on $50 billion of U.S. exports to China.
On April 6, 2018, Trump announced tariffs on $100 billion more of Chinese imports. It would cover just one-third of U.S. imports from China. If China retaliates, it would impose tariffs on all U.S. exports to China.
On April 10, 2018, China announced that trade negotiations had broken down. The United States demanded that China stop subsidizing the 10 industries prioritized in its "Made in China 2025" plan. Later that day, Chinese President Xi Jinping announced he would reduce tariffs on imported vehicles. Although it allowed Trump to save face, it wouldn't affect trade very much. Most automakers find it is cheaper to build in China, regardless of tariffs.
On May 8, 2018, Trump announced he would withdraw the United States from the Iran nuclear deal.
On May 15, 2018, China agreed to remove tariffs on U.S. pork imports. It will also allow Qualcomm to acquire NXP. In exchange, the United States will remove tariffs on Chinese telecom company ZTE. Many countries see Trump's removal of tariffs on ZTE as a weakness they could exploit. They will redouble efforts to find exceptions to Trump's tariffs. Many European countries want to avoid U.S. sanctions on companies that do business with Iran.They may threaten tariffs on U.S. imports as a bargaining tool.
The Great Depression showed that protectionism doesn't work. Other countries retaliate and international trade declines. Instead of boosting U.S. exports, it will reduce them and increase prices on imports. Even the National Association of Manufacturing wants to expand, not end, free trade agreements.
"Repeal and Replace Obamacare"
The Trump administration has weakened Obamacare even without repealing and replacing it. The Tax Cuts and Jobs Act repeals the Affordable Care Act's tax penalties for those who don't get insurance. On January 11, 2018, it allowed states to impose work requirements on Medicaid recipients. It shortened the enrollment period and closed the federal exchanges during peak times during enrollment.
Trump stopped reimbursing insurance companies for costs they incur helping low-income customers. As a result of Trump's threat, many companies forced states to allow premium increases in exchange for remaining on the exchanges for 2018.
"Reduce the Debt"
Trump said he would reduce the debt by eliminating waste in federal spending. He demonstrated this ability in his campaign by using Twitter instead of an expensive PR campaign. He emphasized cost containment in his book "The Art of the Deal." But his debt reduction plan adds $5.3 trillion to the nation's debt.
Trump said that cutting taxes will increase growth enough to offset the loss of revenue. Trump's tax plan will cut income taxes and lower the corporate tax rate to 21 percent. But it will increase the debt, not reduce it. Trump's reliance on supply-side economic theory won't work. The Laffer curve says that tax rates must be in the prohibitive zone, above 50 percent, to work.
Trump promised to grow the economy by 6 percent annually to increase tax revenues. That would be too fast for healthy economic growth. It would create inflation, a boom-bust cycle, and then a crash. His tax plan forecasts a 3 percent growth rate.
He also said he could continue to "borrow knowing that if the economy crashed, you could make a deal. The U.S. will never default because you can print the money." These are the most dangerous statements Trump has ever uttered. The first one is a blatant falsehood. If the economy collapsed, there would be no one to make a deal with. It would send the dollar into a collapse. That would send the entire world into another Great Depression. Printing money would send the dollar back into decline. Interest rates would rise as creditors lost faith in U.S. Treasurys.
That would create a recession.
"Send Illegal Immigrants Back"
Trump's immigration policies focus on blocking illegal immigration. He promised to deport the 2 million to 3 million immigrants in the United States illegally who have criminal records. On October 8, 2017, he asked Congress to withhold federal funds from "sanctuary cities."
A crucial part of Trump's plan is to build a wall along the 2,000-mile U.S. border with Mexico. He estimated the cost at $10 billion to $20 billion. But Congress did not include funding in the Fiscal Year 2017 budget. It only added $1.6 billion to the FY 2018 budget. That's because Trump promised he would force Mexico to pay for the wall. It refused. He threatened to change a rule under the USA Patriot Act. That would confiscate Western Union money transfers to Mexico from immigrants who are in the U.S. illegally.
Trump wants to ensure that open jobs are offered to American workers first. CEOs in Silicon Valley worry that he might restrict the H-1B visa program. It allows 315,000 foreign workers to fill many Silicon Valley jobs. In 2014, 65 percent of all these visas were for computer-related jobs. If the H-1B visa program were threatened, these companies could lose market share and valuable employees.
"Cut the Red Tape"
During Trump's first 100 days, he asked federal departments for a list of wasteful regulations to be eliminated. He also canceled all prior executive orders. The U.S. Chamber of Commerce reported the Trump administration had issued 29 deregulatory executive actions. Federal agencies promptly issued 100 more directives. Congress introduced 50 pieces of legislation. It also repealed 14 Obama regulations. That includes a Consumer Finance Protection Bureau regulation that allowed consumers to sue credit card companies.
The most critical are efforts to rescind Clean Air Act and Clean Water Act rules.
On February 3, 2017, Trump signed an executive order asking the U.S. Treasury Department to revise the Dodd-Frank Wall Street Reform Act. The order signaled agencies to ease up on enforcing those regulations. It may change the Volcker Rule and allow banks to invest depositors' funds in derivatives. It may say some banks are no longer "too big to fail." Many Republicans feel that Dodd-Frank regulations have been slowing economic growth.
The Labor Department has delayed the fiduciary rule to July 1, 2019. It may allow some financial products, such as annuities and individual retirement account rollovers, to be exempt. Financial planners would not have to keep their customers' interest first in those products. In these small ways, Trump can chip away at regulations without involving Congress.
The National Association of Manufacturers said that industry regulations cost the economy $2 trillion a year. Its studies show that U.S. manufacturing costs are 20 percent higher than in other countries. Reducing regulations would help Trump bring back some American jobs.
"Cut Government Spending"
Trump promised to cut waste. He has reduced the number of federal employees with a hiring freeze and promised budget reductions. Many appointed positions remain unfilled.
On the other hand, Trump increased FY 2018 budget to $4.094 trillion. That's more than $4.037 trillion budgeted for FY 2017. He plans to reduce the deficit by bringing in more revenue. The administration estimates it will receive $3.654 trillion, more than the $3.460 trillion estimated for FY 2017.
That creates a $440 billion deficit. That lives up to Trump's promise to reduce the deficit. The FY 2017 budget enacted by Congress estimated a $577 billion deficit. That can't all be blamed on Obama, even though it was his last budget. Congress ignored Obama's budget and Trump's budget amendment. It created a budget that added $38.8 billion to Obama's original budget proposal. Congress' enacted budget was also $4 billion more than Trump's budget amendment.
Trump promised to eliminate the Department of Education and the Environmental Protection Administration. Instead, Trump cut funding for the Education Department by $10.4 billion. He cut the Energy Department budget by $2.2 billion. But cutting these small departments won't do much to reduce government spending
Trump promised to keep existing Medicare and Social Security benefits intact. These benefits were created by prior Acts of Congress and cannot be changed by a president. Social Security is self-funded until 2035. Medicare is only 53 percent self-funded. These two programs cost $1.587 trillion, or 39 percent of total federal spending.
Trump also pledged to update medical technology. That's already happened though. It's one of the three largely unknown benefits of Obamacare.
"Be the Greatest Job-Producing President in U.S. History"
Trump would have to create more than 22.3 million jobs to take that title. That's how many jobs President Obama created from the depths of the recession in January 2010 to the end of his term. President Clinton increased jobs the most percentage-wise, at 19.6 percent. Trump would have to create at least 29.3 million jobs to beat Clinton’s record.
"Spend $1 trillion to rebuild U.S. infrastructure." In January 2018, the administration is planning to release a 70-page infrastructure plan. It will provide the details lacking in the June 8, 2017, "Rebuild America" plan. It outlined $200 billion in spending over 10 years to leverage $800 billion in business spending. It would reduce permit process time by eight years. It would create 1 million apprentices in two years. Trump's infrastructure plan needs to specify how it would leverage private spending.
It also must pass Congress.
Trump's plan would boost growth. Construction is the most efficient use of federal dollars to create jobs. A University of Massachusetts/Amherst study found that 1 billion dollars spent on public works created 19,795 jobs. That's better than defense spending, which created 8,555 for the same cost.
"Create jobs by eliminating outsourcing and bringing jobs back from Japan, China, and Mexico." Trump is correct about the problem. The U.S. lost 34 percent of its manufacturing jobs between 1998 and 2010. Many were outsourced by U.S. companies to save money. Others were eliminated by new technology, including robotics, artificial intelligence, and bio-engineering. Government-sponsored training for these specialties might create more jobs for U.S. workers than would Trump's trade war.
"Keep the minimum wage where it is so U.S. companies can compete." The U.S. minimum wage is $7.25 an hour. Many states with higher costs-of-living mandated higher wages. Ireland, the United Kingdom, Australia, and six European Union countries have a higher minimum wage than the United States.
"Make the U.S. Military So Strong No One Will Mess With Us"
Trump promised to increase the Department of Defense budget by 10 percent. He added that 3 percent of GNP for military spending is too low, it should be 6.5 percent. Trump budgeted $574.5 billion for the DoD. That's exactly 10 percent more than the $526.1 billion in the FY 2017 enacted budget. U.S. military spending, including Homeland Security and Veterans Affairs, was $812 billion in FY 2017. It's more than any other government expenditure except Social Security at $967 billion. It's difficult to cut the deficit while adding to defense.
Trump made other specific DoD promises:
- Get more equipment.
- Bomb the Islamic State group and send troops to Syria. Use Russia as an ally in Syria.
- Engage in military force against terrorists' families.
- Add to U.S. Navy ships and the Air Force.
- Develop a state-of-the-art missile system to defend from Iran and North Korea.
- End the defense sequester.
At first, Trump approved of waterboarding. Trump said he no longer supports waterboarding. He based his change of heart on a conversation with retired Marine Corps General James Mattis. (Source: "Donald Trump on War & Peace," "Donald Trump on Homeland Security," OntheIssues.org. "Donald Trump and the Defense Budget," National Interest.org, December 30, 2015.)
On May 11, 2017, Trump fulfilled a campaign pledge to ask the Defense Department to develop a plan to protect the nation's infrastructure from cyber-attacks. He signed an executive order to review the federal government's online vulnerabilities and adopt upgraded security practices.
Trump promised to reform the Department of Veteran's Affairs. He said he would increase funding for battle-related mental and chronic illness. On January 9, 2018, Trump signed an executive order that expands mental health care for veterans returning to private life. Veterans Affairs Secretary David Shulkin said suicide among veterans is his chief priority. Each day, 20 veterans take their own lives.
Trump also promised many specific changes to the VA:
- Give veterans vouchers to use either with the VA or their doctor. That competition would give the VA an incentive to improve service.
- The VA would provide transitional benefits, such as business loans, job training, and placement services, to help veterans find employment.
- Add OBGYN and other women's health services to every VA hospital.
- Fire corrupt VA executives.
- Change the culture of the VA to reduce inefficiencies.
These programs would work and are necessary. The VA budget of $75.1 billion is only 10 percent of total military spending. Many vets with Post Traumatic Stress Disorder don't receive the care they need. As a result, 10 percent of the homeless population are veterans who suffer from PTSD or other war-related injuries.
Trump Discarded These Economic Policies
After meeting with Chinese President Xi Jinping on April 7, 2017, Trump dropped the claim that China was a currency manipulator. He had said that China artificially undervalued its currency, the yuan, by 15 percent to 40 percent. Part of China's cost advantage is its cheaper standard of living that allows lower wages. Trump ignores that. The yuan has a fixed exchange rate that's pegged to the dollar. In 2000, the yuan was undervalued by 30 percent. But a lot has changed since then.
First, former Treasury Secretary Hank Paulson convinced the People's Bank of China to increase the yuan's value against the dollar. It increased 2-3 percent between 2000 and 2013.
Second, the dollar strengthened by 25 percent in 2014, taking the Chinese yuan with it. As a result, China's products cost that much more than its Southeast Asian competitors’. In August 2015, the PBOC tried letting the yuan/dollar exchange rate float in the free market. Right away, the yuan plummeted. If the yuan were undervalued, as Trump claims, it would have risen instead. Many economists think the yuan exchange rate to the dollar is overvalued, not undervalued as Trump claims.
Trump made some health care promises on the campaign trail that have been dropped. He promised to:
- Allow health insurance companies to operate across state lines.
- Expand Medicaid to all states by making it a block grant program.
- Allow consumers to purchase drugs overseas.
At one point Trump suggested a "universal" market-based plan similar to the Federal Employees Health Benefits Program. He has not mentioned it since being elected. The universal plan is what Obama proposed and Congress rejected.