Protectionist trade policies, deportation of illegal immigrants, tax cuts for individuals and corporations, increased spending on infrastructure and reduced government regulation are all pledges Donald Trump made while campaigning. Many wonder if those pledges are a preview of the Trump presidency. Should we expect the candidate, or compromise?
In a recent Grant Thornton webcast, Gregory Daco, head of U.S. Macroeconomics for Oxford Economics, offered answers to that question, with illustrations based on Oxford Economics models and analysis.
Some of candidate Trump’s promises are viewed as favorable to business, while others could be negative for the economy in the long term. Assessing the promises, Daco identified potential policy moves in public investment, trade, immigration and tax, as well as other monetary decisions that could affect your business.
Changes will be determined by compromise
“One of the risks of this administration is that it could be an era of trial and error,” said Daco. “He tries something and it doesn’t work, he pulls it. If it sticks, he sticks with it. This creates a level of uncertainty.”
Key Trump campaign promises:
- Withdraw from the WTO and NAFTA, and reject the TPP
- Impose a 45% tariff on Chinese imports and a 35% tariff on goods from Mexico
- Build a U.S.-Mexico border wall and increase deportation of illegal immigrants
- Dismantle the ACA
- Simplify the tax code and implement tax cuts mainly benefiting the wealthy and corporations
- Reduce government regulation, including scaling back the powers of the EPA and dismantling Dodd-Frank
- Increase spending on infrastructure to repair the nation’s aging roads and bridges
- Rescind the Iran nuclear deal and increase troops to pursue ISIS
Trump will have executive power to withdraw from the trade agreements, impose tariffs, revise immigration policies, alter regulatory rules and withdraw troops or launch military action. He will need Congress’ cooperation on any economic sanctions, Cabinet appointments, tax cuts, federal spending cuts or increases, and infrastructure spending.
While Republicans will hold majorities in both chambers of Congress, disagreements between Trump and GOP leaders, and warring factions within the party, will likely kill or water down some of the president’s proposals. The slim GOP majority in the Senate will require support from Democrats.
Oxford Economics forecasting takes a pragmatic view
Given Trump’s conciliatory acceptance speech, and the fact that some of his policies require congressional approval, he might take a more moderate stance, easing concerns of individuals, businesses and financial markets.
Possible scenarios, assuming a more moderate stance from Trump and cooperation of Congress:
- Tariffs on selected countries and business sectors, which could hike inflation due to the higher cost of goods, and retaliatory action by countries like China
- Roughly $500 billion in tax cuts over the next decade, more evenly distributed to all income levels to ensure congressional support
- Some $125 billion in public infrastructure investment, likely to receive bipartisan support
- Congress enacting $325 billion in federal spending cuts over the decade to offset some of the tax cuts and infrastructure spending
- About $200 billion in additional revenues from a one-time 10% tax on untaxed foreign profits, instead of the 35% tax
- Some $20 billion in added revenues from taxing the earnings currently designated as carried interest as ordinary business income
Oxford Economics forecasts a 1.9% growth in GDP in 2017, versus Trump’s vision of a 4% increase. Inflation would rise to 2.2%, likely prompting the Federal Reserve to raise interest rates. Consumer spending would rise 2.3%, while the economy would add 1.2 million jobs.
“The U.S. economy will likely continue to experience moderate growth in the short term,” Daco said. “The impact of a Trump presidency in the long term will depend upon how he carries out his policies.”
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