UK: Assessing Mr Trump's Economic Policies

Last Updated: 17 November 2016
Article by Ian Stewart

Donald Trump's policies are as unconventional as his campaign rhetoric. On the face of it Mr Trump may be about to upend the Washington consensus on immigration, government debt, free trade and America's role in the world.  Going through Mr Trump's policies over the last couple of weeks has left me amazed at the scale of his ambitions.

Now the game is on for journalists to establish whether Mr Trump means it all. The notion that he will temporise in government gained traction on Friday when Mr Trump said that, rather than repealing President Obama's health reforms, he might amend them. And on Sunday he diluted his pledge to build a wall with Mexico by saying parts of it might be a fence. But Mr Trump went on to reiterate his commitment to large scale deportations, saying he planned to expel "two to three million" illegal immigrants with criminal records.

Mario Cuomo, three times governor of New York, said that you campaign in poetry and you govern in prose. Mr Trump's campaign may not have been poetic, but it was controversial and attention-grabbing.

Policy under a Trump Administration is likely to be partly prosaic and partly radical. Like all Presidents Mr Trump will change tack or fail in some areas and prevail in others.

President Obama was unable to win Congressional support to close Guantanamo Bay or to push through gun control. But he prevailed with the Affordable Health Care Act which extended health care to millions of uninsured Americans. Mr Obama by-passed Congress and used Executive Orders to significantly extend the campaign of drone strikes against ISIS and the Taliban. And, in 2009, he launched a huge, $100 billion, education spending programme. 

On many big issues Mr Trump will need to carry a Congress which, though in the hands of the Republicans, is unlikely to be pliant. Not winning a majority of the popular vote and the highly controversial nature of much of what Mr Trump has proposed represent additional constraints. 

Mr Trump will arrive in the White House with a record of hostility to free trade which suggests he could become the most protectionist US President since Herbert Hoover in the early 1930s. Mr Trump is opposed to two big trade-liberalised deals, the Trans Pacific Partnership (TPP) with Asia and the Transatlantic Trade and Investment Partnership with the EU. Both now seem likely to fall, and at a time when global trade needs a liberalising fillip. Moreover, scrapping the TPP would create a vacuum into which China could step by creating its own regional trade agreement.

Mr Trump has also suggested that he will repeal, or substantially amend, the North American Free Trade Agreement which, since 1994, has regulated trade between the US, Canada and Mexico. A US President has the power to repeal existing trade deals so Mr Trump seems likely to be able to prevail on this front. He has also said he wants to impose tariffs on Mexican and Chinese imports. Doing so would raise prices for US consumers and could prompt retaliatory tariffs on US exports and, at an extreme, a trade war. The last time the US embraced protectionism was in 1931 when Congress implemented the Smoot-Hawley Act imposing the highest ever tariffs on imports into the US. This measure, and the ensuing retaliation, are widely seen as having contributing to the Great Depression.  

Mr Trump aspires to be a tax-cutting President on the scale of President Reagan in the 1980s. His proposals include more than halving the rate of business tax, taking "millions" out of income tax, cutting the top rate of income tax and abolishing estate tax. The reforms would bring gains across the economy with high earners and corporates benefitting most. The measures, which would require Congressional approval, would boost growth, particularly since Mr Trump plans to combine them with a massive programme of infrastructure expenditure.

This was one of the few areas where Mr Trump and Mrs Clinton agreed. Many mainstream and left of centre economists also support increasing infrastructure spending on the grounds that the US desperately needs to upgrade its roads, airports, and water and energy infrastructure. Record low interest rates would enable the US to do so cheaply.

Big tax cuts and a huge boost to public spending would certainly pep up America's growth prospects. The fact that US equities have rallied since the election suggests that financial markets sense stronger growth lies ahead. But at the same time US government bonds have fallen in value, testifying to concerns about rising government borrowing and more debt issuance.

According to the independent think tank the Committee for a Responsible Federal Budget Mr Trump's plans could lead to an explosion in US government indebtedness, raising the debt to GDP ratio by one third in the next ten years.

Perhaps Mr Trump's most controversial proposals relate to immigration. He has, at various times, said he wants to build an impenetrable wall with Mexico "from day one", that he will deport 11 million illegal migrants and, from "day one", will move out two million criminal migrants. The President has the power to order immigration officials to deport unauthorised immigrants or to ban groups from entering the US on security grounds. But Congress may balk at the vast costs of this, and of building a wall with Mexico.

Consciously or not Mr Trump's domestic economic policies echo those of three past American Presidents - Ronald Reagan, Franklin D Roosevelt and Herbert Hoover.

In the 1980s Reagan's Administration cut taxes, cut regulation, raised spending and presided over sharply higher levels of government borrowing. Roosevelt's New Deal of 1933 aimed to re-boot US growth with a vast programme of deficit-financed spending on bridges, hospitals, schools and dams. And, as we have observed, Herbert Hoover's Administration imposed heavy tariffs on imports in an attempt to protect US jobs from competition.

No one – including Mr Trump – knows for sure what he will be able to do in the next four years. Taking his proposals at face value one of the big questions for economists is whether the boost to growth from tax cuts and infrastructure spending can counter negative effects from protectionism, policy uncertainty and rising government indebtedness.  

It would, of course, be a mistake to take Mr Trump's plans entirely at face value. As the nineteenth century Prussian Field Marshall, Helmuth Von Moltke said, "no plan survives first contact with the enemy".  This is as true in politics as war. Events at home and abroad will shape Mr Trump's plans at least as much as his current campaign stance. George W Bush's Presidency defined by the  9/11 attacks. Mr Obama's has been shaped by the global financial crisis.  

At the moment all we know for sure is that Mr Trump campaigned for what amounts to a revolution in US economic policy. 

PS - A number of readers pointed out an egregious howler in last week Monday Briefing. Ireland's Taoiseach is, of course, Enda Kenny, not Edna Kenny. On a separate matter last week's US election has prompted further criticism of the polling industry. This can be overdone. Both June's UK referendum and last week's US elections were extremely tight contests with usually high numbers of undecided and late-deciding voters. The final Brexit polls were off by about three percentage points on average and most of the US election polls were off by somewhere between two and three points. Most were therefore within the usual polling margin of error for political polls. The greater error seems to have been made by punters. The weight of money being bet overwhelmingly pointed to defeats for Brexit and for Mr Trump. In the US the poll prognosticators were also way off the mark about the election. One quantitative model put the probability of a Clinton victory at more than 99%.

Assessing Mr Trump's Economic Policies

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.