Can Trump Bring Back American Jobs?
Donald Trump promised to be the greatest job-producing president in U.S. history. He pledged to create 25 million jobs in the next ten years. That's not quite enough to beat the 21.5 million jobs President Bill Clinton created in eight years. President Barack Obama created 17.2 million during his term. He created 22.3 million jobs from the worst part of the recession through December 2016. (For more, see Job Creation by President.)
To create those jobs, Trump plans to boost economic growth to 4.0 percent per year. He wants to create good, well-paying jobs, not just low-wage service positions. His plan includes an "America-First" trade policy, tax cuts and rebuilding infrastructure. Here are Trump's job-creation policies for each initiative. (Source: "Donald Trump's Pro-Growth Policies Will Create 25 Million Jobs," DonaldJTrump.com.)
"America First" Trade Policy
End outsourcing and bring jobs back from Japan, China, and Mexico.
Trump correctly identifies the problem. America lost 34 percent of its manufacturing jobs between 1998 and 2010. These were well-paying, steady jobs. On average, manufacturing jobs pay $79,000 a year.
U.S. companies outsourced many of these jobs to save money. But robotics, artificial intelligence, and bio-engineering also destroyed jobs. That means ending outsourcing may not bring back all the decent jobs that were lost. Government-sponsored training for these specialties might create more jobs for U.S. workers than Trump's trade war. Training is just one of the three ways to fix IT outsourcing.
Increase U.S. competitiveness against China.
Trump would take action to reduce China's use of subsidies, which undercut U.S. prices. He would prosecute these trade cases against China at the World Trade Organization. If China persists, then he would impose countervailing duties on all imports from China. He would also identify where China has stolen intellectual property from U.S. companies, and bring these trade disputes to the WTO. But China could retaliate against U.S. subsidies for oil, agriculture, and ethanol. (Source: "U.S.-China Trade Reform," DonaldJTrump.com.)
Trump should also require that any company that wants to sell to America's market must set up factories to hire and train local workers. China requires this already. See more about China's economy.
Trump would tear up the Trans-Pacific Partnership. He says it would force U.S. workers to compete with lower-paid Vietnamese workers, thus sending more jobs overseas. On the other hand, the TPP was formed to help the United States strengthen its ties with Asian countries that are struggling to compete with China. Without the TPP, these countries will rely more on China and less than the United States. That will make America less competitive.
Increase U.S. competitiveness against Mexico.
Trump has many initiatives that involve Mexico. First, he would renegotiate NAFTA to end the maquiladora program. That would bring back some U.S. manufacturing jobs that are now sent across the border. It would also put other companies out of business without the low-cost labor that Mexico provides. (Source: "Trump: NAFTA Trade Deal a Disaster," Associated Press, September 25, 2015.)
If Mexico refuses to revisit NAFTA, then Trump would impose a 35 percent tariff on its imports. He is betting that Mexico wouldn't risk losing the $294.7 billion in exports to the United States. That's 80 percent of its total export business. If the tariff were imposed, it could create jobs for U.S. producers of these imports. That would include manufactured products, oil, and agriculture. On the other hand, consumers would face goods that were 35 percent more expensive. By law, President Trump could only raise tariffs by 15 percent for 150 days without Congressional approval.
For more, see U.S. Imports by Year by Country.
Candidate Trump promised to erect a wall on the Mexican border and force Mexico to pay for it. At the same time, he would deport undocumented workers. By reducing the number of low-wage illegal employees, Trump hopes to increase the number of jobs available to Americans. But these are not the well-paying jobs he promised. In many cases, farmers and other businesses cannot find enough legal workers to fill these jobs. Many of them worry they will go bankrupt if Trump closes the border. (Source: "If Donald Trump Was President, Here's What Would Happen to the U.S. Economy," The Street, March 3, 2016.
"Trump's Trade Policy Is a Big Loser," USNews, April 19, 2016. "So What Exactly Is Donald Trump's Economic Policy?" CNN Money, July 28, 2015.)
Reduce Corporate and Investment Taxes
Trump's tax plan lowers the corporate tax rate from 38 percent to 15 percent. The United States has one of the highest corporate tax rates in the world. It forces companies to move their operations and jobs overseas.
But the effective tax rate is already 15 percent. That's because corporations have tax attorneys who take advantage of deductions, lowering their effective rate. Almost half of corporations pay no taxes. They are "S" corporations that pass the tax burden to their shareholders. (Source: "Time to Get Tough," Donald Trump, p. 54, Dec 5, 2011. "Donald Trump Tax Reform," OnTheIssues.org.)
A more cost-effective method is to cut business payroll taxes. One billion dollars in payroll tax cuts creates 13,000 new jobs. Trump's across-the-board tax cuts only create 4,600 new jobs for every $1 billion in cuts. The best plan would also target any stimulus to small businesses. They produce 65 percent of all new jobs. For more, see Do Tax Cuts Create Jobs?
Spend $1 Trillion to Rebuild U.S. infrastructure.
Trump promised to spend $100 billion a year for 10 years to repair America's aging roads, bridges, and airports. (Source: "Trump's $500 Billion Infrastructure Promise Creates Metals Rally," Bloomberg, November 9, 2016.)
That's more than Obama's Economic Stimulus Plan, which spent $261 billion in four years on shovel-ready projects. Construction is the most efficient use of federal dollars to create jobs. A UMass/Amherst study found that $1 billion dollars creates 19,795 jobs. For more, see 4 Best Ways to Create Jobs.
But this is not the time to add expansionary fiscal policy. The economy is already in the expansion phase of the business cycle. That much spending could overheat it and create inflation. If that happens, the Federal Reserve will raise interest rates to cool things off. The Fed's response would increase the $266 billion interest payment on the national debt.
Keep the U.S. Minimum Wage at $7.25.
A lower U.S. minimum wage helps companies compete. That's especially true for exporters since the dollar has risen 25 percent since 2014. The dollar's strength makes U.S. workers 25 percent automatically more expensive than before. For more, see Minimum Wage Pros and Cons.
Trump would leave it up to the states to raise the wage in areas with a higher cost of living. He admits that, after campaigning around the country for two years, he doesn't see how anyone can live on $7.25 an hour. In fact, a head of a family of four making that wage would be living below the poverty level. For more, see Income Inequality.
In his first 100 days, Trump declared a moratorium on new federal regulations. He asked federal agencies to identify regulations that cost jobs so they can be repealed. Trump claims that federal regulations cost the economy $2 trillion in 2015. (Source: "Bringing Back Jobs and Growth," WhiteHouse.gov.)
Trump wants to dismantle the Dodd-Frank Wall Street Reform Act. He said the Dodd-Frank regulations hurt smaller community banks while helping big banks get too big to fail. Congress can't repeal the Act without the unlikely support of Democrats. Trump's pick for Treasury Secretary, Steve Mnuchin, wants to keep the Volcker Rule but look at its impact on bank liquidity. He also wants a clearer definition of proprietary trading. (Source: "Mnuchin Supports Dodd-Frank's Volcker Rule," Morning Consult, January 19, 2017.
"Trump's Transistion Team Pledges to Dismantle Dodd-Frank Act," Bloomberg, November 10, 2016.)
How It Affects You
Trump's expansionary fiscal policy would create U.S. jobs in the short-run. It would boost growth to 3.5-4 percent. That prosperity could last two to three years. It may be enough to get Trump re-elected to another term.
Tax cuts are also an expensive way to do create jobs. That's because every dollar in lost tax revenue only creates 59 cents in economic growth. Companies won't create new jobs unless there is the demand. Right now, corporations on sitting on record levels of cash. Instead of creating jobs, they are buying other companies and expanding overseas. Tax cuts are not one of the four best ways to create jobs.
Third, Mexico and China would raise tariffs in return. That would reduce American exports to those countries. One reason for slow U.S. growth since the recession is that international trade hasn't rebounded. Tariffs and a trade war would only worsen that.
The National Association of Manufacturers agrees with Trump's plan to lower U.S. manufacturing costs, which are 20 percent higher than other countries. It would also like to see him reduce regulations that cost $180 billion a year. But it disagrees with his plan to end free trade agreements.
Fourth, prices for American consumers would increase. That includes the $481.9 billion in consumer electronics, clothing, and machinery imports America imports from China. It would also damage U.S. corporate profits. That's because many of those imports are manufactured in China for American companies. (For more, see U.S. Trade With China.)