It’s the economy, stupid.
James Carville, campaign strategist for former President Bill Clinton, was right during the 1992 presidential campaign when he said, “it’s the economy, stupid.” It’s still the economy that matters most. While the media love former President Donald Trump’s inflammatory rhetoric, the public will look past his rhetoric and weigh his economic policies when it comes time to vote in November.
So, what are Trump’s principal economic policies?
He believes in cutting taxes. Mainstream economists agree that the corporate tax cuts of the Tax Cuts and Jobs Act of 2017 were good policy. The corporate tax cuts stimulated investment and continue to contribute to long-run economic prosperity. But the tax cuts for individuals were bad policy. Tax cuts for individuals are not paying for themselves. To reduce the deficit, appropriate tax policy would be to increase taxes on consumption.
What about regulations and the administrative state?
Here, Trump had a strong track record as president. Rolling back the administrative state would be good policy again today. On economic regulation, Trump enjoys a large advantage over President Joe Biden who strangles the economy with excessive regulation. However, like Biden, Trump is wrong about tariffs. Tariffs, as a general rule, are bad policy.
China is a special case on tariffs. China is an adversary of the U.S., and tariffs against China are good policy because of national security interests. The problem is that Trump would not stop at imposing tariffs against China. He proposes to raise tariffs on countries that run a trade surplus with the U.S. and that is poor policy. It would lead to a trade war. It would lower the standard of living for Americans, and it would lower the standard of living across the world. Economic prosperity is best served by the rule of comparative advantage. The U.S. has a comparative advantage in very high value-added goods and services.
The U.S. excels at designing the world’s most advanced semiconductors and in providing financial services to the global economy. The American consumer wants a washing machine that is cheap and reliable. The American consumer should not care whether that machine is manufactured in Iowa or South Korea. Let South Korea produce washing machines. Let the U.S. focus on designing semiconductors for artificial intelligence. The nation is stronger and more prosperous when Americans design chips and not washing machines.
A significant number of people may not like it, but Trump’s embrace of an election policy of mass deportation for immigrants who are in the country illegally would also be terrible policy. If elected in November, he promises to institute the largest domestic deportation in U.S. history. Such a policy would lead to lower employment and a weaker economy. Deportations would not create jobs for native-born Americans, and they would not raise wages for native-born Americans.
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The best economic research on past deportations suggests that they lead to a reduction in investment and the formation of fewer new businesses. Research shows that deportations reduce employment and earnings for American workers in the short run and the long run.
But yes, in the end, it is the economy that matters.
