The late and beloved George H.W. Bush’s presidency became a cautionary tale in its time. Trailing in his 1988 race against Massachusetts Gov. Mike Dukakis, Bush reassured voters: “Read my lips,” he said, “no new taxes.”
It was a fine promise. But under pressure from Democrats, Bush agreed to a tax increase, and it haunted his presidency until its premature end. There is little doubt that the broken promise played a role in depriving Bush of a second term. Now, high taxation has become so toxic to the reputation of any aspiring Republican politician that they go out of their way to sign the key pledge devised by Americans for Tax Reform not to raise the net tax burden.
Tax hikes are politically toxic because they slow economic growth and discourage investment. On Monday, we saw another illustration of this when the Dow Jones Industrial Average surged by nearly 300 points on news of a trade truce between President Trump and Chinese premier Xi Jinping.
The market rallied on the mere glimmer of hope that China and America could reach a long-term trade deal. Little or no action was required as a show of good faith; the only concrete good news behind the stock market’s up day was that a large additional tariff did not go into effect.
That shows just how much markets, which is to say investors, hate high taxes. That includes arbitrarily high and protectionist tariffs, which force consumers to pay higher prices.
If Trump’s tariffs stand for long, or if this truce collapses and a trade war with China proceeds, the economy will suffer serious damage. This problem becomes even more acute now that Trump has entered the cycle for his own re-election battle.
The 2018 elections could have gone a lot worse for the GOP. But the economy has been booming and unemployment is low, and these took the edge off voter dissatisfaction. Between their modest gains in the Senate and the unexpected retention of a few key governorships, Republicans got off easy.
But there’s certainly no guarantee that Trump will be able to boast about job and business creation when voters cast their ballots in 2020. If the president lets bad trade policy get in his way, he will weaken the economic recovery, which, up to this point, has been perhaps the strongest argument in favor of his presidency.
Trump has an opportunity ahead of him. If he wins a second term, he will be able to reshape the judiciary and the regulatory state entirely. He has been unusually aggressive in reforming them.
That’s why he needs to rethink his lifelong love for tariffs. He habitually talks of winners and losers, scorning the latter. Doing no tariff harm to the economy is probably the best way he can avoid falling into the latter category.
