Here’s what passes for conventional wisdom in the business world since Donald Trump won the election: He’s gonna be great for business because he’s a businessman. And while there may be a shred of truth in that assumption–the President-elect is indeed a businessman–some of the policies he has said he will pursue could wind up sending the American economy into a tailspin.
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Larry Kudlow, an adviser to Trump on economic policy, says he’s of the opinion that Trump’s plans for tax cuts and infrastructure spending will pump up the economy:
“I think you are going to see tax reform and corporate tax repatriation much along the lines of what he promised during the campaign and what Republicans in Congress already support. And I don’t think you’ll see willy nilly imposition of trade tariffs but rather a series of re-negotiations. You give me a 15 percent business tax rate and good repatriation terms and expensing of new investment and I’ll give you a big jump in economic growth, 4 or 5 percent for the next several years.”
Four to five percent would be fantastic, no matter what political party you belong to. We might see jobs created as a result of the infrastructure bill, and that could easily pump more money into the economy, meaning we would all prosper as a result. Or as the old saying goes, A rising tide lifts all boats.
So are we about to let the good times roll with a President Trump? Not so fast.
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What happens if Trump also keeps his campaign promise to slap huge tariffs on goods from China and Mexico? That’s when the rising tide turns to a tsunami of negative.
If indeed Trump decides he wants to start a trade war, there will not be any winners as a result. The entire world will suffer, and should the United States be the instigator of this trade battle, you can expect Americans will suffer the most, paying higher prices for nearly everything we buy that isn’t manufactured in this country.
Also, if Trump is able to get Congressional approval for a lowering of the corporate tax rate from 35 to 15 percent, the federal debt will skyrocket at a rate never before seen. Heather Boushey, an economist at the Washington Center for Equitable Growth, warns:
“A tax policy like this is going to increase long-term debt to unsustainable levels and is not based on sounds economics. This would be a massive cash give-away to multinationals who are already doing great. What you will see is a further rise in inequality and a decline in our ability to make long-term investments in things that actually foster broad-based growth.”
If you want to see early signs of how the market is already reacting to what they expect from Trump, consider this, from an article in Politico:
“By Thursday, the yield on the 10-year Treasury note rose to 2.118 percent, its biggest four-day jump in over three years. This suggests that investors believe that Trump will rely heavily on government borrowing to fund his agenda, potentially increasing rates on everything Americans pay for, from their cars to their homes to everyday purchases.”
Yep, the return of inflation. So after the initial high of good from Trumponomics, we might wind up much worse off economically than at any time since the late 1970s. Sounds like the recipe for a one-term Trump Administration.
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