Desmond Lachman warns that some of President-elect Donald Trump’s ideas could slow the American economy.
H.L. Mencken, the late American journalist, famously wrote that “Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” Following Donald Trump’s victory in yesterday’s election, the average person will soon learn what Mencken meant. If Mr. Trump implements the economic program that he outlined on the campaign trail, our economy will be in for some very rough sledding over the next four years.
Let’s start with Mr. Trump’s budget policy, which will put our public debt on a truly unsustainable path. If there is one thing Mr. Trump promised on the campaign trail, it was a slew of tax cuts. Among other things, he promised to extend the 2017 Tax Cut and Jobs Act, reduce the corporate tax rate from 21 percent to 15 percent, and eliminate taxes on Social Security benefits. With possible Republican control of both houses of Congress, Mr. Trump will have little difficulty in securing passage of his aggressive tax cut program.
Even before Mr. Trump’s electoral victory, the Congressional Budget Office (CBO) was warning that the country was on a dangerously unsustainable public debt path. …
… Another central plank of Mr. Trump’s economic plan would be to resort to import tariffs on a massive scale. He would levy a 60 percent tariff on all imports from China and a 10–20 percent tariff on all imports from the rest of our trade partners. The purported purpose of these tariffs was to bring manufacturing jobs home and to reduce the trade deficit. Never mind that the expected ballooning of the budget deficit would almost certainly result in a widening of our trade deficit. It would do so as a result of our saving level falling even more short of our investment level than it did before.
One of the major drawbacks of massive resort to tariffs is that they will substantially raise import prices. That will hit the common man hard in the pocket and will add to inflation.
