Donald Trump is once again the world's most powerful person this was I believe the greatest political movement of all time there's never been anything like this in this country with his ponon for unpredictability we can look forward to some serious plot twists over the next few years and this time around Trump is promising radical economic reforms that could reshape the economy not just in the US but around the globe so today we take a closer look at trumponomics what we can learn from Trump's first rodeo and what he's cooking up before his comeback we're talking trade Wars mass deportations and trillions upon trillions of dollars of federal spending buckle up folks it's going to be a wild ride now I'll start with a small caveat when the US economy is booming the president gets the credit and if it's going downhill they shoulder the blame now this is only natural but we should ask ourselves to what extent the President is responsible for the state of the economy they're responsible for steering the ship but they didn't build it themselves the economy under the Biden Administration for example was as much the legacy of his predecessors policies as his own likewise the economy in Trump's second term is going to be a result of policies of previous administrations including his own if the economy is looking good when Trump is inaugurated it'll be because he hit the ground running and knocked it out of the park on his first stay back in office if not he will have inherited the worst managed economy ever from Sleepy Joe the truth though is often less straightforward because the economy is shaped by macroeconomic cycles and events that are not under the president's control but nonetheless each president does bring their own signature projects and policies that leave a lasting impression so with this Nuance in mind let's check out how the first Trump Administration managed the economy so Trump's first term began at the end of the longest period of economic expansion in American history the recovery from the great financial crisis began in June 2009 and it just never stopped for almost 11 years there was an unbroken line of economic growth until the pandemic hit unemployment reached a 50-year low of 3. 5% in February 2020 normally during periods of economic growth government budget deficits decrease but the opposite was true in the first 3 years of the Trump Administration I say the first three years because 2020 saw the unprecedented $2 trillion pandemic relief package but this was not the origin of the increasing deficit Trump's signature tax cuts and jobs Act of 2017 cut corporate tax rates and individual income taxes to stimulate economic growth this provided short-term economic benefits but it also significantly reduced federal revenue the Congressional budget office estimated that these Cuts would add $1. 5 trillion to the national debt over a decade at the same time bipartisan budget deals increased spending on defense and domestic programs this combination of increased spending and reduced Revenue contributed to a budget deficit of just shy of $1 trillion in 2019 an unusually high number for a period of low unemployment and high economic growth in 2020 the debt to GDP ratio reached almost 15% its highest level since World War II during Trump's 2016 campaign he said he would eliminate the national debt within 8 years but during his first presidency it actually increased by 40% this leaves him four more years to get the job done so he'd better get his skates on anyway that long decade of economic growth came to an abrupt end with the arrival of the pandemic in March 2020 unemployment shot up to a 90-year high of almost 15% a level not seen since the Great Depression some three million jobs were lost and Trump became the only president in modern history to leave office with a smaller Workforce than when he started how many of those job losses could be attributed to Trump's own policies and how many were an unavoidable consequence of the pandemic well it's hard to say precisely but according to the international labor organization pandemic era unemployment was exceptionally severe in the US this was in part because of the flexibility of the US Labor Market a structural factor that was not of Trump's own doing however whereas other countries implemented employee retention schemes the US did not and this was a political decision of the US government at the end of March Trump signed into law a $2 trillion pandemic relief package but this wasn't implemented as quickly as equivalent measures in other countries while the US waited for relief measures to be rolled out Mass layoffs ensued and many suffered economic hardship since the US does not have a Universal Health Care System having health insurance is a matter of life and death and many Americans rely on employer sponsored health insurance schemes in such cases Mass layoffs compounded negative Health outcomes during the pandemic back in 2010 the Affordable Care Act was passed to provide Health Care access to Americans who don't have employer sponsored insurance this program began a seven-year uptrend in the number of Americans with healthc care coverage one of President Trump's Flagship policies was to repeal the Affordable Care Act although it was not actually repealed Trump's policies successfully reversed the trend of coverage expansion and the number of insured Americans fell by 4 .
6 million or 16% on the other hand it was a fantastic four years for wealthy people and corporations the Trump tax cuts temporarily boosted disposable income across all income groups but wealthier households saw a greater percentage increase as they tend to own more assets and benefit more from lower corporate taxes with taxes slashed and no significant increase to the federal minimum wage corporate profits were turbocharged this contribut to a great run in the stock market during Trump's first term and since wealthy households own a disproportionate share of financial assets wealth inequality increased for those on Lower incomes wages stagnated as Healthcare housing and education costs continued to rise this group was disproportionately affected because they spend a larger share of their income on these Essentials but hey it was a great time in the markets though now the last piece of Trump's economic puzzle is a PO that changed the world and one that he's bringing back big time for his second term I'm talking about tariffs which is of course just another word for import taxes Trump's tariffs are such a big deal that we made a whole Deep dive about them which you can find linked to down below and this brings us to the second Trump Administration it hasn't begun yet but Trump has said a lot of things about what he wants to do for the US economy tariffs do seem to be his Flagship idea though he's called himself the Tariff man he says tariffs is the most beautiful word in the dictionary and during a recent interview with Bloomberg at the economic Club of Chicago tariffs were all he could talk about now tariffs are exstensively intended to be Trump's stick to get foreign companies to build production facilities in the US as part of his plan to reshore manufacturing and industrial jobs the idea here is that the mere threat of crippling tariffs is an negotiating tool intended to make other countries and companies capitulate the fact that tariffs have been steadily escalating ever since their introduction in 2018 suggest that this strategy may not have produced satisfactory results so far presumably if tariffs as a coercive negotiation tactic were successful they would not have ended up being enforced so extensively and for such a long time but maybe it's because the tariffs just aren't big enough we'll see this time Trump has pledged a 100% tariff on goods from Mexico a 60% tariff on goods from China and a 20% tariff on goods from anywhere else in the world in some cases he has proposed tariffs targeted at individual companies again it's worth keeping in mind that these are opening bids in Trump's classic art of the deal even so these opening bids are absolute Bazookas for example a 200% tariff on Goods specific specifically from one American Machinery manufacturer who's planning to move some production to Mexico As Trump puts it quote you make the tariffs so high so horrible so obnoxious that they'll come right away indeed now the other purpose of tariffs is as a source of federal revenue which Trump has suggested could replace the federal income tax if this is the purpose then tariffs should not be used as a negotiating tool that can be avoided when counterparties give the US What It Wants instead tariffs should be slapped on everything regardless of whether or not foreign exporters comply with us demands income taxes are the biggest single source of federal revenue accounting for 2. 18 trillion of the $4. 4 trillion collected last year the total value of goods imported last year was $3.
1 trillion so it will be quite a challenge to replace income tax by taxing Imports higher tariffs mean more federal revenue per import but they also have the effect of reducing the quantity of goods imported Trump will therefore have to set tariffs at an optimal level to where the decrease in Imports does not outweigh the increased revenue from higher prices research by the Peterson Institute for international economics shows the optimal rate to be 50% If All Imports were taxed at this rate the government would be able to rake in 78 billion in Revenue so at best tariffs would be able to pay for a large income tax cut however this $780 billion in Revenue would likely be offset by Revenue lost to the dramatic effects that such high tariffs on All Imports would have on the US economy and international trade Bloomberg economics estimates that Trump's new tariff regime will shrink US GDP by more than 1% and push up CP High by around half a percentage Point according to One Wells Fargo Economist the US will face a quote modest stagflationary shock meaning that economic output would take a tumble while price pressures would rise some would say it's happening already though again that's because since 2018 to 2019 tariffs have been making Essentials more expensive in the US it's a trend that continued under the Biden Administration and seemed on the cards regardless of who won the recent election now tariffs may be Trump's highest conviction play of this cycle but they're not the only thing he has up his sleeve he's reportedly also set his sights on the levers on offer at the Federal Reserve according to Trump running the FED is quote the greatest job in government you show up to the office once a month and you say let's flip a coin and everyone talks about you like you're a God since that's the case Trump reckons that he should have a say in interest rate decisions quote because I think I have very good instincts however history suggests that Central Bank Independence is associated with lower inflation while political interference in Central Bank policy tends to increase it the caveat is that the FED has arguably been politicized already most fed officials are Democrats and one former fed official even proposed raising interest rates to cause a recession on Trump's watch more recently senior Democratic party politician s including Senator Elizabeth Warren have called on the FED to cut rates guess she missed the memo about the recession plan anyways the next pillar of Trump's economic policy is the mass deportation of undocumented migrants if you're getting Deja Vu here it's because he also pledged to deport all 11 million us undocumented residents during his 2016 presidential campaign this never happened though and it's probably because migrant laborers who are not able to enjoy protection under federal labor laws are the backbone of corporate profits in many US Industries this pool of easily exploitable subminimum wage labor is too good for business for any administration of either party to get away with removing it from the labor market but it plays very well with the electorate so Trump ran it back for his 2024 campaign this time he says that mass deportation will inspire loyalty from America's allies and there will be no labor shortages because legal migration will offset the massive outflow of Migrant laborers the American Immigration Council estimates the cost of deporting the tens of millions of people who have entered the US illegally over the last few years to be at least $315 billion although they emphasize that this is a highly conservative estimate of course it goes without saying that illegal immigration also comes with significant costs to society and the economy by the same token though it took years for tens of millions of people to enter the US so it's going to take years to get them out again this makes a long-term expulsion operation the only option the AIC estimated the cost of a decade long operation under which they assumed that around 20% of the 13 plus million people would voluntarily leave before they were deported deporting the remainder would average out to $88 billion per year so 968 8 billion over the course of a decade and unless the 13 million plus Deportes are immediately replaced by new migrants the loss of workers across us Industries could devastate the economy causing US GDP to decline by up to 6.
