Donald J. Trump is positioned to achieve the most radical reshaping of economic policy since Ronald Reagan. Even under Reagan, Republicans never controlled both houses of Congress.
Donald Trump’s economic speech Monday in Detroit was a mish-mash of ideas, according to economic analyst Steve Rattner. Rattner brings charts to explain how Trump’s tax cuts would work and who they would impact.
Since Mr. Trump has yet to provide many specifics, I can’t thoroughly assess the overall impact of his plan. But at the least, if he follows through on his ideas, we could face higher prices on imported goods, rising interest rates, substantial inflation and a further shift of wealth to the upper classes.
For starters, Mr. Trump has promised an immediate attack on trade deals, at least with countries he views as manipulators. Presidents have significant authority to act unilaterally in this area, and Mr. Trump has insisted he would put 35 percent tariffs on imports from Mexico and 45 percent on those from China.
Trade, which has been proved to stimulate economic growth both here and abroad, has already been slowing, and Mr. Trump is determined to slow it further in an effort to protect blue-collar manufacturing workers, many of them his supporters.
Mr. Trump’s tariffs would raise the prices of imported goods sharply, cutting the purchasing power of every American. Lower-income Americans — including Mr. Trump’s core supporters — would be hurt the most because they disproportionately buy less expensive imported items. For China, and particularly Mexico, the economic costs would be significant, which is why at one point on Wednesday the Mexican peso had plunged by more than 13 percent.
While some manufacturing jobs might come back as a result of the tariffs, a greater number of domestic jobs would most likely be lost because Americans would have less spending power. A recent study by the nonpartisan Peterson Institute for International Economics estimated that, rather than bringing jobs back to the United States, Mr. Trump’s tariffs could result in a trade war that would cost our economy five million jobs and possibly lead to a recession.
The centerpiece of Mr. Trump’s plan is a huge $5.8 trillion tax cut unaccompanied by specificity around what expenses would be cut to pay for it. (Indeed, the president-elect has proposed more spending on defense and infrastructure.)
As soon as Mr. Trump’s ascendancy became clear on Tuesday night, interest rates on Treasuries began to rise. Usually, an unexpected event causes a flight to the safety of government debt, pushing yields down. That the opposite occurred reflects fears that the deficit might balloon out of control.
Mr. Trump has promised to keep Medicare and Social Scurity benefits unchanged, a commitment at odds with Speaker Paul D. Ryan’s own economic proposals. As a fiscal conservative, Mr. Ryan is unlikely to accept large tax cuts unaccompanied by major spending reductions. That could lead to the evisceration of many of the discretionary federal programs — think education or research and development — critical to putting our economy on a stronger footing.
To be sure, a tax cut on its own would give Americans more cash to spend. But according to te Tax Policy Center, by 2025, 51 percent of Mr. Trump’s reductions would go to the top 1 percent, who both least need it and would be least likely to spend it.