Speculating about how the economy would perform under a second Donald Trump presidency normalizes the candidacy of a deeply flawed human being. But we’ll all have to live in Trump’s world if he’s elected. So it seems important to talk about the economic outlook under another Trump term.
I talked this week to several of Trump’s economic advisers. They told me that a Trump 2.0 administration would be a lot like the Trump 1.0 administration — except, they hope, more disciplined and more effective.
Trump has said he wants to extend in full the Tax Cuts and Jobs Act of 2017, parts of which are set to expire at the end of 2025. The act slashed the corporate income tax to 21 percent from 35 percent and lowered personal rates. He hasn’t said much about how he would offset the revenue cuts with spending cuts, aside from trying to repeal the clean energy spending in the Inflation Reduction Act, which wouldn’t do the trick.
Trump’s plan for fighting inflation focuses on increasing the supply of goods and services — for example, increasing domestic oil production to lower fuel prices and deregulating the economy so companies can produce more at lower costs. The hope: If Trump can pull down inflation, the Federal Reserve will gain confidence to lower interest rates, which will boost the economy’s growth.
Trump’s plan for trade is to use tariffs and the threat of tariffs to push other nations — China, in particular — to lower barriers to American products and curb subsidies of their own exports. His policy on immigration will be to stop the illegal kind, not the legal kind, the advisers said.
Presented this way, Trump’s platform sounds like that of a John McCain or a Mitt Romney. In practice, though, there’s a good chance that on the economy, Trump 2.0 would be as populist and convention bashing as Trump 1.0, if not more so. For one thing, this time he would start the term with cabinet members and other advisers who are 100 percent on his team — not the likes of Gary Cohn, a centrist Democrat and former No. 2 at Goldman Sachs who served as the first director of his National Economic Council until Trump replaced him with the more like-minded Larry Kudlow, a TV financial news host.
How the economy would perform under four more years of Trump is hard to say because a lot can happen that’s not under his control. That’s equally true if President Biden is re-elected, of course.
One nonpartisan perspective comes from the financial world, where the premium is on making correct guesses, not helping or hurting any particular candidate.
Allianz, a German financial giant, predicted in a report last month that inflation would be higher and budget deficits bigger under Trump than if no policies were changed. How much would depend on Congress’s actions, the report said.
Similarly, Oxford Economics, a British-based forecaster, predicted this month that under a “limited Trump” scenario — in which his agenda would be constrained by Congress, economic challenges and the courts — inflation would be slightly higher but gross domestic product adjusted for inflation would be slightly higher as well. Under a “full-blown Trump” scenario, in which the president got everything he wanted, inflation would be even higher, and gross domestic product adjusted for inflation would be “as much as 1.8 percent lower relative to our base line,” Oxford said.
The rationales of Allianz and Oxford are similar. Both assume that spending cuts will be limited. Allianz pointed out that the budget deficit widened in Trump’s first term even before the Covid pandemic. Federal receipts fell as a share of gross domestic product because of the big 2017 tax cut. What’s more surprising is that outlays as a share of G.D.P. rose, not fell, despite Trump’s budget-cutting vows.
Allianz and Oxford predict that higher tariffs will contribute to inflation. Trump talks about using tariffs to punish foreign producers, but in most cases a majority of their costs are borne by American buyers because import prices go up. (As I wrote Wednesday, Trump expressed interest last year in a 10 percent tariff on almost all imports. According to The Washington Post, he has also talked with aides about the possibility of a special 60 percent tariff on imports from China.)
Those forecasters could be wrong, of course. Certainly Trump’s advisers think they are. They point out, for example, that inflation remained low after the Trump tariffs went into effect.
“If you liked what Trump did on the economy the first time, you’ll like what he does the second time,” Stephen Moore, an unpaid senior economic adviser to the Trump campaign, told me. “He wants to hit the ground running. He feels like the clock is ticking.”
“The difference between Trump and Reagan, and I worked for both, is that Trump is not especially ideological,” Moore said. “Reagan was ideological. Trump is a businessman. When you talk about issues with him, he deals with common sense.”
Moore said Trump doesn’t always act on his threats of raising tariffs, which he uses as leverage “to get other countries to do what is in the U.S. national interest.” By Moore’s theory, tariffs might not be that much higher under Trump than under Biden. Then again, Trump once tweeted, “I am a Tariff Man.”
Trump has spoken about using the power of impoundment to rein in budget deficits. It’s plausible he would do so: Impoundment is withholding congressionally appropriated funds by the president from their intended use, which feels like Trumpian behavior. But Congress might fight back against usurpation of its authority.
Politico reported this week that Robert Lighthizer, who was the U.S. trade representative under Trump, has discussed ways to weaken the dollar to make U.S. products more competitive. Trump himself hasn’t harped on the issue, although he did tweet in 2019 that “We should MATCH” what he called currency manipulation by China and Europe.
As for tariffs, a U.S. International Trade Commission report showed Trump’s steel and aluminum tariffs didn’t push up prices for domestic buyers a lot. (The report said the tariffs raised prices of steel by about 2.4 percent and aluminum by about 1.6 percent, but the costs were probably almost entirely swallowed by importers, not final consumers.)
How things turn out if Trump is elected will depend a lot on which party controls the House and Senate and on who occupies key positions in the executive branch. “The personnel is the alpha and omega of this entire political operation to effect change,” Paul Dans, who directs the Heritage Foundation’s 2025 Presidential Transition Project, told me.
Scott Bessent, an unofficial Trump economic adviser who runs a hedge fund, Key Square Capital Management, said Biden’s policies, coupled with the Federal Reserve’s monetary policy, have worsened inequality by boosting stocks, which are mainly owned by the rich. “I’m concerned that we’re heading for a replay of the French Revolution driven by these execrable policies,” he told me.
On the one hand, Bessent is right that the rich have done well under Biden. On the other hand, I have a hard time seeing how inequality would decline under Trump, who wants to extend tax cuts that have primarily benefited the rich.
In 2016 the stock market soared after Trump was elected (after a first-night hiccup) as investors got excited about the potential for tax cuts and deregulation. The reaction was strong partly because his victory was unexpected. If he wins again, investors will be less surprised, and the reaction could be less positive: Investors may conclude that the Federal Reserve will keep interest rates high to offset overly stimulative Trump policies.
I agree with Moore that if you liked how Trump ran the economy the first time, you’ll probably like it again. In a way, though, the details are secondary. That we’re even having this conversation not much more than three years after Jan. 6, 2021, is already a huge victory for Trump.
The Readers Write
Concerning your newsletter on a second Biden term: I’m retired, and most of the retirees that I talk to feel that they were better off economically under Trump. Maybe working people via salary increases are keeping up with inflation, but retirees are falling behind. I guess our only advantage is that we are not looking to borrow large sums of money at 7-plus percent to buy a house.
Mike Johnston
Palm Coast, Fla.
You wrote about the need for new political technologies. The political technology we need in the United States is used in most of the advanced democracies: proportional representation that provides for majority rule and prevents tiny shifts in electoral results from causing radical reversals of public policy. Wicked problems like climate change are impossible to deal with when policy swings radically, thanks to fewer than 50,000 voters in a few key states in a country of 330 million-plus.
John Gear
Olympia, Wash.
Thomas Hale’s ideas for dealing with long problems sound awfully like the end of democracy and the new rule of highhanded experts. You can definitely count me out! I’m sure I’m not alone in saying that I won’t go willingly into that darkness.
Laurence Scaduto
Brooklyn
The inability to accurately forecast inflation using the Phillips curve could stem from the fact that the production process has become a lot more complex and dependent on many more variables, which are also interdependent and which we may not fully understand at the moment. Hopefully some young, brilliant and hungry economists can re-examine the premises and assumptions of the Phillips curve and can enrich it.
Dimitris Oktapodas
Pyrgos, Greece
The failure to take corporate greed into account is the reason economists are falling short on their assessments of inflation. Look at the record profits grocery stores have made these past two years.
Ally Saad
Dearborn, Mich.
Corporations pay out exorbitant amounts of money to chief executives and stockholders, so they must continually raise their prices. And they basically pay nothing in taxes, no matter how much they make. The gap between them and the rest of us will only continue to grow if nothing is done about this.
Denise Schauerman
Media, Pa.
Quote of the Day
“An honest laborer digs coal at about 70 cents a day, while the president digs abstractions at about $70 a day. The coal is clearly worth more than the abstractions, and yet what a monstrous inequality in the prices! Does the president, for this reason, propose to abolish the presidency? He does not, and he ought not.”
— Abraham Lincoln, speech in House of Representatives on internal improvements (June 20, 1848)