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You Decide: Will The Trump Economic Policies Work?

Late afternoon sun paints the downtown Raleigh skyline.
Late afternoon sun paints the downtown Raleigh skyline.

YOU DECIDE: WILL THE TRUMP ECONOMIC POLICIES WORK?

Dr. Mike Walden

The voting is over, and we now know Donald J. Trump will take office next year as the 45th President of the United States in January.

A big part of the presidential political campaigns centered on the economy, with candidates talking about boosting economic growth, creating jobs and improving pay. With Mr. Trump the winner, all eyes will be on the policies he will promote to achieve these goals.

So what will President-elect Trump eventually do to help the economy? Here I provide my predictions for policy initiatives from the Trump Administration as well as an analysis of those initiatives, particularly for North Carolina. Then I’ll let you decide on their chances for success.

I think the Trump Administration will initially focus on three proposals to spur economic growth – a major tax cut, a large infrastructure spending program and an expansion of military spending.

The tax reduction will include both individual and business income tax decreases. The size of the tax reductions could be as high as $6 trillion over ten years. Inevitable debates and compromises will likely occur over specific details as well as potential curtailment of tax credits and deductions. The debates will be lively and intense.

The infrastructure spending package could be as high as $1 trillion, targeted for projects like roads, bridges, airports, seaports and possibly the electric grid. However, with projects having to comply with various regulations, one issue is how fast these monies could be spent.

Mr. Trump has pledged to upgrade the military. Depending on the split between equipment and personnel, this could have positive economic impacts on Fayetteville, Goldsboro and Jacksonville, all regions in our state with major military installations.

Taken together, these three spending initiatives constitute a “fiscal stimulus” – similar to the stimulus passed in early 2009. Some – but not all – economic research shows such tax-cutting and additional government spending may elevate economic growth and create jobs. Yet possible downsides are an increase in government borrowing, a jump in interest rates and a rise in the dollar’s international value which would reduce U.S. exports.

A big part of President-elect Trump’s campaign was international trade – specifically making trade deals work better for the country and recovering jobs lost to other countries from trade. To achieve these goals, during the campaign Mr. Trump talked about suing foreign counties that violated trade agreements, renegotiating the agreements and possibly placing large tariffs (fees) on imports from other nations coming into our country.

Few states have felt the downsides of trade deals during the last quarter century more than North Carolina. For almost a century the economies of many rural counties were carried by industries like textiles, apparel and furniture. Collectively those industries are now two-thirds smaller than twenty years ago, and the trade pacts are part of the reason as production has shifted to other world regions.

There are two important questions with the Trump trade plan. The first is the possibility of a trade war. That is, if the U.S. restricts imports from foreign countries, will they do the same for our exports? This could hurt North Carolina industries that have large exports, including machinery, pharmaceuticals and agricultural products.

Second, even if foreign production returns to the U.S. and North Carolina, jobs may not return at the same rate. This is because manufacturing is undergoing a major shift in how products are made – moving away from labor and to technology and machinery. So, if we returned to the textile, apparel and furniture production levels of twenty years ago, employment likely would not.

President-elect Trump also wants to expand domestic energy production, and this objective could impact North Carolina. Our state has the largest known reserves of oil off the east coast. I estimate that if that oil was accessed, the economic activity could – at current oil prices – add $800 million of annual income and 6000 jobs to our state economy. Of course – and very importantly – there are potential adverse consequences to the coastal tourist industry and to wildlife from a new off-shore oil industry.

There are other initiatives Mr. Trump wants to take – for example, on health care, immigration and financial markets – that will impact North Carolinians but take longer to develop.  Also, the President will appoint the Federal Reserve Chair in January 2018.

The overall theme to President-elect Trump’s economic plans is that faster economic growth will solve many of our problems. He wants to double the annual economic growth rate from the 2 percent average of the last eight years to at least 4 percent. This is a tall order, as the growth rate has been 4 percent or higher only nine times since 1986 and never after 2000. So, you decide if this is a goal we can reach!

Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook, and public policy.

This post was originally published in College of Agriculture and Life Sciences News.

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