2024 is here and, with it, elections. Wild, frankly! Must we? We must.
Given this less-than-fun fact, it would probably be useful to understand what the front-running presidential candidates — President Joe Biden and former President Donald Trump — would try to do about the economy. It touches everyone’s lives, and it matters when it comes to voting — there’s a reason “It’s the economy, stupid” is a thing.
Biden has been pitching “Bidenomics,” laying out his theory of the economy and touting a record that is rather strong. Said pitch has not been suuuper successful in breaking through, though — poll after poll shows voters tend to trust Trump more on the economy. But should they?
There’s only so much the president has to do with the performance of the economy in the first place, at least in the near term. Some of the biggest economic disruptions of the past few years — Covid-19, the supply chain crisis, Russia’s invasion of Ukraine — are not things a president whipped up overnight.
The economy was strong under Trump, and not that dissimilar to where it’s at now under Biden in terms of, say, unemployment. During his tenure, Trump had some luck, contextually: Because of where the United States was in the business cycle, he caught the extended upswing after the long recovery from the Great Recession. He definitely did stuff — signed the Tax Cuts and Jobs Act into law; took a more aggressive stance on trade; attempted to repeal Obamacare — though it’s not clear how much of an impact any of it had in the short term. It takes time for those sorts of changes to work their way through the economy.
“You can’t claim that the tax cut was what was driving wage and income growth in 2018 or something like that,” said Oren Cass, the executive director of American Compass, a conservative economic think tank. Now, years later, the beneficiaries of the tax bill have largely been the wealthy and corporations anyway. Cass affirmed the short-term point on trade: “The benefit of that is not something you see in year one.”
It’s also worth remembering that before the pandemic hit, people were beginning to worry that a recession might be on the horizon in 2019.
All that said, what would Trumponomics 2.0 even be? A disclaimer here is that Trump’s economic policy is nearly as hard to predict as the economy itself (which is to say: impossible). Almost all of the 10 experts, observers, and economists across the political spectrum I spoke to for this story clarified that many of their estimations had to come with a bit of a shrug. Trump says a lot of things, and it’s not always clear how of it much he means.
“Even as president, Trump was difficult to pin down, because you can never figure out whether his last utterance is some sort of tactic or strategy or is actually what he wants,” said Douglas Holtz-Eakin, president of the American Action Forum, a right-center think tank, and the former director of the Congressional Budget Office.
Much of what Trump said on the 2016 campaign trail that he was going to do, he did accomplish to some extent, if not fully. This time around, Trump is likely to be able to move faster, especially if Republicans sweep the House and Senate. Even Trump’s own camp was caught somewhat off guard when he pulled off a victory in 2016; it took him a while to get his footing in office. He also brought more traditional Republicans in with him to the White House.
“Essentially, what he did, notwithstanding what he might have been talking about as a candidate or what he actually believed, is brought in a bunch of standard-issue cabinet secretaries and then adopted [former Republican Speaker of the House] Paul Ryan’s legislative agenda,” Cass said.
The 2025 landscape could look quite different. Right-wing groups have put together much more specific plans for a second administration, and it’s not clear how many of those more conventional GOP-ers who kept things more in line last time are coming back.
“Trump has basically said he wants to use the power of the presidency to get revenge, so how much damage that inflicts, who knows?” said Dean Baker, senior economist at the Center for Economic and Policy Research, a progressive think tank. “He had a lot of people in his first administration that were at least somewhat deferential to precedent, to the law. And he’s quite explicitly saying, ‘No, I’m getting my people in there and they’re going to follow my orders.’”
Under Trump, the country would probably have A Time with trade
During his first term, Trump tried to take a tough stance on trade, putting tariffs on items such as steel and aluminum and taking aim at China specifically. He also oversaw the creation of a sort of new NAFTA in the United States Mexico Canada Agreement (USMCA). The former president is talking about much bigger — and perhaps damaging — measures if he lands in the White House in 2025.
Trump has called for a 10 percent tariff on imports for all countries, meaning anybody trying to import anything from anywhere would have to pay a tax equal to 10 percent of whatever the thing is. The idea is that it would boost domestic production — which is an idea many people like — and that in the long term it would incentivize people to invest in making more in the United States.
The question of whether Trump can do this on his own, without Congress, is a tricky one. The president does have emergency and other powers to impose tariffs unilaterally without Congressional approval. Depending on the sector and the reasoning for the tariffs, the president could be taken to court to challenge ones that go beyond the emergency duration of six months or that go against the intent of previous legislation, explained Adam Posen, president of the Peterson Institute for International Economics. “But in recent years, under Biden and Trump, Congress has not pursued such cases, and other legal challenges have proven rare and unsuccessful. Thus, the tariffs once in place in practice continue indefinitely.”
“Trump likely would argue that IEEPA (International Economic Emergency Powers Act) gives him the authority to raise tariffs. Indeed, he threatened to use this authority to raise tariffs on Mexico when he was unhappy with its lack of cooperation on migration,” said Michael Smart, managing director at Rock Creek Global Advisors, where he focuses on trade and investment policy. “In that case, he could argue that the ‘emergency’ at issue was the flow of migrants across the southern border. It is hard to fathom what kind of emergency could justify the 10 percent baseline tariff on global imports.”
There are drawbacks to this broad-based tariffs approach. Other countries aren’t just going to say, “Oh, okay, fine, you all do that and we’ll just keep on keeping on.” They’ll retaliate with tariffs of their own. That will mean less sales for US products abroad, which would impact people and businesses in export-oriented industries in the US.
In an inflationary environment where prices are already high, tariffs would likely nudge them up even more, many experts say. It might be a onetime nudge, and just how much prices change will vary across products, but given the current state of economic affairs, it’s not ideal.
“If the only thing you do is impose a 10 percent tariff on goods broadly, that’s bad for economic efficiency, because business and consumers have to pay more for finished goods and businesses for intermediate inputs. It will make us less competitive in world markets,” said Jeffrey Miron, an economist at Harvard and the libertarian Cato Institute. It’s not necessarily “catastrophic,” he added, until you get to the part where other countries start imposing their own retaliatory tariffs and world trade shrinks overall.
“Higher tariffs mean higher prices by definition. Imports of everything from consumer electronics to apparel to vehicles are going up. Businesses are going to try to pass that through,” said Mark Zandi, chief economist at Moody’s Analytics. “They’re not going to pass all of that through, but they’re going to pass some of that through.”
As with everything in life, basically, there are trade-offs here. “Your import tariff may protect one or several industries, but it’s going to come at the expense of the broader economy,” said Kyle Pomerleau, senior fellow at the American Enterprise Institute, a right-leaning think tank, who focuses on tax policy.
Remember the 2017 tax bill? It’s coming back in 2025, whoever’s in charge.
One of Trump’s signature legislative achievements was the Tax Cuts and Jobs Act (TCJA), which made a number of changes to the US tax code, many of which disproportionately benefited corporations and the wealthy. Some of the changes were permanent, such as reducing the corporate tax rate from 35 percent to 21 percent. Others were not, including many individual provisions, which are set to expire at the end of 2025. That means whoever is on Capitol Hill and in the White House will have to figure out what to do on that front.
Steve Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute, said that the path forward for the TCJA might not look that different under a Democratic versus a Republican regime. “Once in place, tax cuts for individuals are hard to reverse,” he said.
Some experts told me Democrats would likely be inclined to take a look at tax rates for higher-income individuals, but they note that Biden has pledged not to raise taxes on anyone making under $400,000 a year. “A package that deals with the expiring individual tax cuts will look very different under unified Democratic control and a Democratic White House and unified Republican control with a Trump White House,” Pomerleau said.
Trump, on the other hand, could seek even deeper cuts. Jeff Stein at the Washington Post reported in September that the former president and his associates are weighing even more aggressive slashes to taxes than in the 2017 bill on both the individual and corporate fronts. They say that maybe those cuts could be paid for with the aforementioned import tariff.
For many voters, tax talk can feel like a bit of a snoozefest, but it’s a big deal. Rosenthal pointed out that middle- and low-income Americans weren’t the winners of the 2017 bill — foreign investors, wealthy individuals, and corporations were. “The Trump tax cuts ironically put a lot of foreigners first, and they’re not contributing to paying for US social needs,” he said. “These different regimes really provided windfalls to the wealthiest of Americans.”
The money raised from a broad tariff could be directed somewhere other than another tax cut for those who, arguably, don’t really need it — such as infrastructure (remember perpetual “Infrastructure Week?”), industrial policy, or some sort of family support.
Many Republicans appear to be hell-bent on stripping the IRS of extra funding for tax enforcement put in place under Biden, which Trump would surely go along with. The point of funding the IRS more is to try to close the “tax gap,” meaning the difference between what the government collects in taxes each year and what it’s owed. One estimate puts the tax gap at a loss of $7 trillion in revenue over the course of a decade. In other words, getting people — specifically rich people — to pay what they owe could go a long way in the budget, an idea Trump and the GOP are not into.
“I think this rollback of IRS modernization . . . that is actually something that directly affects how much money the government has to spend, whether you want to spend it on paying down the deficit or spend it on increased childcare supports,” pointed out Felicia Wong, president and CEO of Roosevelt Forward, a sister organization of the progressive think tank the Roosevelt Institute.
Implementing more and deeper tax cuts and slashing IRS funding would likely worsen the federal budget deficit — the difference between the money it brings in and what it spends. Concerns about the issue have already been creeping up in recent months. Would Trump really lose sleep about the deficit if he were in office? It’s not likely. He didn’t last time, and Republican regimes, when they cut taxes, generally don’t.
“Trump does not care about the deficit,” Rosenthal said. There is one thing that might change that: if markets start to freak out. That could force him to pay more attention, but it’s unclear now if any of that is on the horizon.
The thing about Trump is the wild card(s) of it all
Most experts I spoke to agreed that Trump is likely to take certain lines on the economy similar to what he did in his first term — tougher rhetoric on legal and illegal immigration, which many say would be bad for the economy; more of a focus on deregulation; energy policy that focuses on oil and gas and has little to do with any efforts at green energy or climate. They noted that he does have some overlap with Biden — both have more of a protectionist bent, and both are likely to at least extend some of the 2017 tax cuts. And they pointed out that much of what Trump brings with him is traditional Republican fare, though not all of it.
“In a lot of ways, Trump has combined some traditional Republican orthodoxy on economics with — the easiest way to describe it is early-’90s trade skepticism of the Democratic Party,” Pomerleau said.
“It’s populist rhetoric and elite economics,” Wong said.
Some progressives I spoke to worried that Trump would take efforts to gut agencies such as the Federal Trade Commission and Consumer Financial Protection Bureau and undermine labor. They noted that if Republicans get a trifecta — meaning the White House, House of Representatives, and Senate — a lot of GOP dreams of making cuts to discretionary spending programs could become reality.
“His budgets contained extraordinary cuts to discretionary spending, to the types of programs that Republicans traditionally try to cut,” said Bharat Ramamurti, former deputy director of the National Economic Council under the Biden administration. “There’s a set of circumstances in which there are big changes to discretionary spending programs that are really bad news for lower- and middle-income people.” That could translate to cuts on food stamps, housing support, and education support, among others.
Trump, like Biden, has promised no cuts to Medicare and Social Security. While most experts I spoke to said they believed he’d stick to that, Ramamurti said he wouldn’t be so sure given the current mood of the Republican Party. “I think it’s very much on the table for there to be big cuts to Social Security and Medicare,” he said.
Antitrust enforcement has been ticking up since the Obama administration, said Diana Moss, vice president and director of competition policy at the Progressive Policy Institute, a progressive think tank. The question with Trump, however, is whether in his next administration he would try to use antitrust laws and agencies to go after perceived enemies.
“He weaponized antitrust for sure, which I think will happen again should he come back into power,” Moss said. She pointed to reports of Trump’s attempts to block the AT&T-Time Warner merger because of his hate for CNN and to the Trump Department of Justice’s investigation into automakers that made a deal with California on emissions (the investigation was later dropped).
Trump can’t do much on inflation (nor can Biden) — much of that is in the hands of the Federal Reserve. The Fed is supposed to be completely politically independent, though Trump may try to pressure the central bank to keep interest rates low to shore up the economy, as he’s done before, even if inflation starts to once again take off.
“A bedrock of a well-functioning market economy is a well-functioning central bank where they can make tough choices,” Zandi said.
Ultimately, Trumponomics has parts that may be good for the economy, parts that are not so good, and parts whose effects, ultimately, would pale in comparison to much broader forces. In an environment where people are already concerned about inflation, tariffs that increase prices even more — not to mention risk a trade war — may not be the way to go. Many economists argue that tight labor markets call for more immigration, not less. But it’s not like the business community or the entire economy is going to have a meltdown if Trump returns to the Oval Office in 2025. The stock market was fine with Trump winning the White House in 2016, and it was good with Biden winning in 2020, too. (The stock market is not, of course, the economy.)
The thing about Trumponomics is a lot of it is a bit of a black box — it’s never entirely clear what he really believes. But it is true that if he gets a second go at the White House, he’ll likely be able to move faster and potentially in a less restrained way. Beyond the economy, there’s also the whole issue of him being a threat to democracy. If Trump really is able to undermine institutions, delegitimize and gut longstanding tenets of the political system, and destabilize the country, that’s bad on a lot of fronts — including from an economic perspective.
“One of the best things America has going for it is the rule of law,” Ramamurti said. “If you talk to investors, the thing that scares them about putting money into some other countries is corruption: Are the courts going to treat you fairly, or do you get caught up in a political maelstrom that is unpredictable and undermines the value of what you’re investing in?”
With Trump, that’s a risk — and one worth weighing as November 2024 approaches.
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