Trump must strengthen and clarify his economic agenda

Donald Trump runs the risk of spooking the global financial community unless he tightens up and shows real clarity in his economic plan.

Having won New Hampshire, the front runner in the Republican candidate race retains his national lead heading into South Carolina at the weekend.
By maintaining pole position, which could well see him named President in November, it is vital that Mr Trump prioritises his economic plan, particularly after admitting last month that he didn’t want to ‘inherit all this stuff’ after giving a dismal view of the U.S. economy.

It seems as though he is far more concerned about making headline-grabbing statements about walls and using his skills as a great businessman to stir up support from his hardcore followers, rather than devising a rational economic strategy for the U.S.

Therefore, should Trump become President, and in charge of the world’s largest economy, his subsequent decisions will have a widespread impact both nationally and globally.

To my mind, there are several factors that cause the most concern.

First, is Mr Trump’s proposals on tax.  He claims he want to simplify and restructure the tax code – capping business tax at 15 per cent; the highest marginal income rate would fall from almost 40 per cent to 25 per cent; middle-income earners would be paying 10 or 20 per cent; and those earning less than $25,000 per year would not be required to pay any income tax.

Although I’m in wholly in favour of such pro-growth, supply-side reforms, I fear such an audacious plan would cause the federal deficit to skyrocket and subsequently reduce revenue.

Second is Trump’s trade talk.  There is no doubt of his proven business history, but some of his plans are somewhat dubious.

As an example, he has spoken about measures he would implement to prevent China from fixing its currency to enable U.S. manufacturers to better compete.  However, when China’s currency is devalued, their goods become cheaper, meaning Americans can purchase them for less than they would had they been made in the U.S.

Trump claims preventing China’s currency fixing would bring employment back to the U.S., but it’s questionable whether these jobs would in fact make it back to America.

Additionally, Mr Trump plans to impose tariffs on imported goods, such as a 35 per cent tax on non-U.S. car manufacturers.  Again, even if this did bring back American jobs, the move would result in U.S. buyers paying more for cars made outside the country, subsequently affecting the American and indeed global economy.

Third, I refer to Trump’s policy on immigration.  The Republican front-runner has spoken about deporting the estimated 11 million undocumented immigrants – which would, in turn, affect both supply and demand.  The labour market would decrease and real GDP would drop.

Looking at just the farming sector, which relies on cheap immigrant labour, agriculture incomes would tumble, making foodstuffs costlier for Americans across the country.

Up to now, Mr Trump’s economic agenda appears rather vague, and being a potential U.S. President, this is likely to translate into ambiguity and volatility in global financial markets – triggering economic instability.

As such, Mr Trump needs to articulate a workable, robust plan at this point in the presidential race, and replace bluster with reason.

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