Continuing Obama’s expansion will not be easy for President Donald Trump. It was a long and sustained recovery; the United States is now close to full employment, incomes have been rising for four years, and the stock market was at historic highs even before our new president arrived in Washington. To some, we feel like we are at the top of the market and at the end of a long run, and a downturn and recession could be near. Based on past business cycles, this is a plausible outcome.
So it’s fair to ask: will Trump’s policies more or less avoid recession in the next few years?
On the positive side, consumer confidence is rising and years of improving economic conditions after the trauma of the Great Recession have left American consumers in decent shape. There are signs that the global economy is recovering, which would be good for American businesses and workers. Market valuations are high and corporate earnings remain strong, so our companies have plenty of capital to invest. Oil prices remain low by historical standards and health care inflation – a major cost driver for US businesses – has been fairly subdued.
In contrast, the recovery and expansion is nearly eight years old, and the Federal Reserve is raising interest rates. But I would argue that the biggest threat to the current good economic times is Trump himself and his economically illiterate political agenda. Let’s review a few examples of things that could help break the current momentum in the economy:
Labor market disruptions. The president’s new immigration policies and less subtle xenophobia will make it harder for American companies to recruit and attract immigrant workers. This could not only hurt the growth prospects of many American companies, but could also encourage them to expand their business overseas rather than in the United States.
If the president’s effort to kick the country’s 11 million undocumented workers succeed, hundreds of thousands of small businesses could lose valuable employees, causing further disruption, especially at a time of near-full employment when workers are scared in many parts of the country. The sectors most likely to be most affected by these policies are technology-intensive businesses, agriculture, and hotels and restaurants.
Loss of tourism. Foreign tourism is big business for the US economy, at $250 billion a year. The administration’s overt hostility toward immigrants and people of color, toward countries that are major drivers of U.S. tourism — Mexico, China, and the EU — and the strict border and security policies immigration seems to be encouraging many to ignore America this year.
Early data shows that US tourism is going to be hit hard in 2017, and possibly for years to come. Losses could be as low as $10 billion, but could easily be much higher. Those losses could cost tens of thousands of jobs in the United States and would do particular damage in Florida, a critical battleground state.
Make America sicker and poorer. If Republicans pass something like the Trump-Ryan health care plan, tens of millions of American consumers will lose their health insurance in the coming years, and millions more will suffer a very significant blow to their standard of living. by reducing government support for insurance. . So not only will tens of millions of people lose the peace of mind and health benefits of medical insurance, but they and many others will end up poorer and less able to move America’s economy forward. The magnitude of this transfer of wealth from workers to wealthy Americans will impact aggregate demand and slow growth.
The weakening of the global trading system. In what may be Trump’s most sweeping policy, the president has made it clear that he no longer believes in the global trading system that America has built and led for the past 70 years. It’s hard to overstate how important this new approach could be for American businesses and workers. Not only could supply chains be disrupted and orders difficult to fulfill on time or at all, but the rise of protectionism around the world will make it harder for American companies to sell their goods, eating away at corporate profits and therefore the wealth of the United States itself. The last time the world adopted policies like the ones Trump is flirting with now, it had a global depression followed by a terrible world war.
A reckless budget. Trump’s central economic argument is that his deep, broad-based tax cuts will spark robust economic growth in years to come, even as they come to the end of a long expansion. Although this result is possible of course, we know from an economic point of view that it is not certain. The last time we tried this policy – in 2001 – we experienced a slow recovery that ended in financial collapse, the Great Recession, falling incomes and huge deficits.
Moreover, it is simply impossible for Trump to deliver on his promises to cut government revenue, increase defense and security spending, and preserve rights programs and not end up with huge deficits to banana republic scale. Even savage cuts in national spending and entitlements will not produce a fiscally responsible budget if it starts with huge tax cuts and huge defense increases.
Last week, Trump’s team announced that it would not submit a detailed budget to Congress until late May. It is several months later than any presidential budget in modern history, suggesting they are struggling to match the numbers. In retrospect, the White House’s simultaneous harsh and unprecedented attacks on the Congressional Budget Office for its professional rating of the Republican health care bill makes a lot of sense — it was just a warm-up to delegitimize what which will be a much more blunt treatment of the potential crazed Trump budget by the CBO.
If the president’s plans deliver huge tax benefits to those who are already well off – like Bush did – and create massive deficits, the net result will harm the US economy and America’s fiscal integrity. the nation. the extremely regressive nature of the Trump-Ryan health care bill is a sign of the direction the GOP is heading, and it should worry anyone who cares about a strong and healthy U.S. economy.
So, growth or recession? If the President simply kept current economic policies in place, the United States would likely be heading for a few more years of growth, perhaps even strong growth. But the president isn’t keeping those policies in place, and I’m afraid what he’s trying to do threatens our economy overall more than it helps it grow.
Our president has made a good living caring for wealthy Americans and foreigners. While this strategy may have worked as a private enterprise, the American people and their economy can only thrive if the tide lifts all boats, not just those moored at Mar-a-Lago. And that’s just not where America is heading now. So consider me worried about our economic prospects and Trump’s ability to sustain a long and lasting expansion left to him by his predecessor.