As things stand, the American economy enters a period of uncertainty. With Trump at the helm, nobody is quite sure exactly what will happen, how it will happen and who it will affect. In this blog, use the limited available information on economic policy the Trump administration has released, I have attempted to make sense of how the next 4 years might play out.
Very little of the Trump campaign was based around exactly how he was going to “Make America great again”. In fact, most the time, he was more interested in lambasting this Democratic opponent than answering the key questions about economic policy. Whenever he did, he usually tied his response back the Obama administration in some form, blaming them for America’s current economic frailties. However, what I did find online both troubled and intrigued me.
Many of the policies proposed by Trump are reminiscent of those implemented by George Bush in the noughties. Despite a well-deserved terrible reputation, Bush had some early success with the economy with good growth initially, but inevitably struggling towards the end of his time in office. Trump’s proposed policies look like they may follow a similar path. The main 3 are:
Income tax cuts tend to help initial growth, and should give the average American greater disposable income. However, this has the obvious repercussion of costing the government money in taxes and more than likely increase the deficit. Getting the balance right between taxing enough to keep public functions working effectively, while keeping money in the hands of the electorate will be key to the success of this policy under Trump. Also, this will more than likely be the issue that will affect him the most when trying to get re-elected in 4 years’ time.
Higher interest rates:
As things stand, interest rates are currently steadily climbing on expectations of fast growth and high inflation in the early months of Trumps presidency. This is usually a sign of a healthy economy, but not in this case. High interest rates slow growth and high inflation reduces buying power for consumers, meaning they spend less overall. An increase in rates will also hurt investment in the economy.
Import tariffs and a strong US Dollar
As the economy grows and interest rates increase, the dollar will become stronger on the international market. Unfortunately, this isn’t a good thing for US businesses who export a lot of their goods as a stronger currency makes their produce more expensive for foreign businesses. Trump also intends to increase import tariffs, most likely in an attempt to offset the loss in income taxes. Doing so may well be detrimental to American manufacturers and companies who buy products abroad. These firms must then decide to either take the hit themselves (unlikely), or add it to the price charged to the consumer, hurting the average Joe once again.
In conclusion we can think of the economy as a waterbed. One minute all is all fine and very comfortable. Apply pressure in the wrong area however, and it can explode, leading to a tidal wave of destruction. We can only hope that Trump employs the most knowledgeable people possible to prevent it ever getting that far.
Thanks for reading!