It was an easy call for some to support candidate Donald Trump instead of Hillary Clinton during the presidential campaign. Trump was a successful businessman; Trump self-financed his presidential run; and Trump’s early foreign policy positions were strictly non-interventionist. Clinton, in contrast, had no practical business experience whatever; raised boat-loads of cash from Wall Street and foreign interests; and, as Secretary of State, supported regime change in Egypt, Libya, and Syria. Conclusion: Trump in a heartbeat.
But the early euphoria for President Trump may have already faded somewhat. Those who expected a more “presidential” Donald Trump have been disappointed by the continuation of careless Tweets on things such as “massive” voter fraud in the presidential election. And Trump’s early foreign policy positions have already been tempered by his decision to increase U.S. military operations in Syria and “stabilize” Iraq (with U.S. troops) after the defeat of ISIS.
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Yet the real disappointment, surprisingly enough, is in the area of economic policy, supposedly Donald Trump’s strong suit. Trump and his economic team have yet to put forth an intelligent market-oriented legislative agenda to support candidate Trump‘s promise to “make America great again”. Where’s the beef?
To be sure, there have been some early executive orders that advanced long-debated pipeline construction projects in the U.S. and that rolled back costly EPA regulations which had no definable benefit. Fine. But the bulk of the large and important policy questions have either been addressed incorrectly or have not yet been addressed at all. To wit:
1. While most Republicans are committed to a repeal of the Affordable Care Act, their failed “replacement” bill (The American Health Care Act) was a fatal mix of capitalism and socialism. The good news is that it would have repealed the individual mandate and eliminated a host of medical taxes; the bad news is that it still contained a web of federal regulations such as health insurance mandates and premium price controls which are all incompatible with free and efficient markets. A hopeless mix from the start.
2. Trump’s suggestion of a border adjustment tax (BAT) for imports is economic nonsense of the highest order. Tariffs and taxes on imported goods harm both foreign suppliers and domestic consumers and are unfair and economically inefficient. This dumb and dangerous proposal should never have been floated and should simply go away.
3. The Trump economic team is correct that thousand-page global trade agreements (such as NAFTA) have led to some business and job loss in the U.S. (They have also led to lower prices for thousands of consumer goods). But, at the same time, the Trump team seems hopelessly confused about some aspects of international trade, especially when they condemn the trade deficit.
Government budget deficits can be harmful since taxpayers must pay the interest on the bonds to fund the deficit. But trade deficits are an entirely different matter. When U.S. consumers purchase more goods from abroad than U.S. firms sell abroad, the U.S. runs a trade deficit and the implication is that this is somehow bad and has to be fixed. Not so.
Trade deficit critics simply overlook the fact that the (excess) dollars that domestic consumers send abroad must return to the U.S. as INVESTMENTS in domestic firms and/or U.S. government entities. (Where else could the dollars go?). Yet the failure to pay attention to these capital inflows (which are obviously beneficial) results in an important trade fallacy that many politicians (and even some economists) are only too happy to perpetuate.
4. Finally, why wasn’t substantial tax reform ready to go on day one? U.S. corporate business taxes are some of the highest in the industrial world and corporations keep hundreds of billions off-shore because of perverse tax incentives. Individual tax rates also need reform, especially the seldom discussed self-employment tax which has its own host of unintended consequences. High taxes on work and investment restrict job creation and economic growth; the lower the burden of taxes, the better. Yet the Trump failure to quickly repeal Obamacare may now make any serious tax reform that much more difficult. Huge strategic mistake.
We are less than 100 days into the new administration and perhaps these critical comments are premature. From a free market perspective, things could improve; yet the theoretical confusion and bumbling start on important economic policies likely portends further difficulties down the road. It’s going to be a very bumpy ride.
