Trump’s big ideas would stunt U.S. growth and spur inflation
Washington Post
By Fareed Zakaria
September 27, 2024 at 9:17 a.m. EDT
From the start of his entry into political life, Donald Trump has had one enduring advantage. Many see him as a man who knows a lot about how to generate economic growth for the country. After all, he’s a rich businessman and he played a super successful one on prime-time television for years. The feeling is, he must know what creates growth. In fact, almost everything Trump proposes would have the opposite effect.
Take his most important proposals, ones that he repeats constantly: sweeping tariffs on all imported goods and mass deportations of undocumented workers. It is rare to find topics on which economists agree as strongly as they do that both would be bad for growth and cause inflation to spike.
The logic is glaringly obvious. If you raise the price of goods for consumers — which happens because importers will pass the tariffs on to them — and if you reduce the number of workers, you will get fewer people working and fewer people buying stuff.
The Peterson Institute did the math and concluded that depending on how fully Trump would carry out those policies, the American economy would be 2.8 percent to 9.7 percent smaller than otherwise by 2028 and inflation would be between 4.1 percentage points and 7.4 percentage points higher than otherwise by 2026. The Center for American Progress calculated that the typical American family would pay $2,500 more for goods and services each year — a highly regressive form of taxation, since all Americans, rich and poor, would face the same tariff bill. The deportation proposal cannot fully capture the cost of the loss of innovation to the economy, given that immigrants are disproportionately likely to start businesses. So other than massive new regulations and taxes on goods and labor, Trump believes in deregulation.
The damage these proposals would wreak on the American economy is much, much greater than any “anti-business” proposals a Democrat might offer — say an increase in corporate taxes. In fact, most of Kamala Harris’ proposals are closer to center-left than from the Bernie Sanders wing of the party. Some continue the efforts of the Biden administration to invest in the American economy in ways that yield big results — in education, training and health. The expanded child tax credit helped cut childhood poverty by 30 percent for the year it was in place, and we know that investments early in life yield powerful benefits even economically. Beneficiaries grow up to earn more than they would have otherwise and to be less of a burden on taxpayers. Similarly, infrastructure investments are much needed and long-delayed.
But the Biden-Harris administration has also joined the new vogue for government intervention to pick winners and losers, with mixed success. Having campaigned against Trump’s China tariffs, Biden largely kept them. One of Trump’s strongest lines in his debate with Harris was to point out that if she opposed his tariff proposals, how come she and Biden have kept most of them? Recently, the Biden administration completed an exhaustive review of Trump’s tariffs, and it showed the tariffs had been fairly ineffective in changing China’s behavior and in revitalizing American manufacturing. And yet, the administration concluded that the tariffs should be kept because maybe at some point they would work.
The Biden administration has wisely blocked China from getting some of the West’s highest-end technology that has military applications, including, crucially, computer chips. But in trying to revive chip manufacturing in the United States, the White House has pledged billions of dollars (almost $20 billion promised in grants and loans) to U.S. chipmaker Intel. Meanwhile, Intel is in free fall, hemorrhaging customers and cash, its stock price so low that it is now becoming a target for takeover. Intel has failed to adapt to a changed technology landscape, but it is, sadly, the perfect candidate for government money. It is big, respectable, with a storied history, and its CEOs are smooth-talking bureaucrats. Intel seems to be on its way to becoming Boeing, a company that exists largely as a ward of the state.
Both Trump and Harris have plans to address the acute shortage of housing. Trump’s, as usual, is deeply worrying, if you believe he’ll actually carry it out. Seeking lower mortgage rates, he might pressure the Federal Reserve to cut interest rates, as he did when he was president. Harris offers a mix of subsidies to increase supply and demand and also expanded rent controls. Both candidates are wrong, and both should instead take a look at a recent experiment, in our hemisphere, which has had stunning initial success. Argentina’s president, Javier Milei, scrapped his country’s rent control law, among the world’s strictest. As a result, supply of rental housing has increased by 170 percent in Buenos Aires, and rents are down 40 percent by one estimate.
In an age when government intervention is all the vogue, let’s not forget that markets are ultimately what create enduring growth and efficiency. No one needs more reminding of that than the celebrity-businessman in this race.
By Fareed Zakaria
September 27, 2024 at 9:17 a.m. EDT
From the start of his entry into political life, Donald Trump has had one enduring advantage. Many see him as a man who knows a lot about how to generate economic growth for the country. After all, he’s a rich businessman and he played a super successful one on prime-time television for years. The feeling is, he must know what creates growth. In fact, almost everything Trump proposes would have the opposite effect.
Take his most important proposals, ones that he repeats constantly: sweeping tariffs on all imported goods and mass deportations of undocumented workers. It is rare to find topics on which economists agree as strongly as they do that both would be bad for growth and cause inflation to spike.
The logic is glaringly obvious. If you raise the price of goods for consumers — which happens because importers will pass the tariffs on to them — and if you reduce the number of workers, you will get fewer people working and fewer people buying stuff.
The Peterson Institute did the math and concluded that depending on how fully Trump would carry out those policies, the American economy would be 2.8 percent to 9.7 percent smaller than otherwise by 2028 and inflation would be between 4.1 percentage points and 7.4 percentage points higher than otherwise by 2026. The Center for American Progress calculated that the typical American family would pay $2,500 more for goods and services each year — a highly regressive form of taxation, since all Americans, rich and poor, would face the same tariff bill. The deportation proposal cannot fully capture the cost of the loss of innovation to the economy, given that immigrants are disproportionately likely to start businesses. So other than massive new regulations and taxes on goods and labor, Trump believes in deregulation.
The damage these proposals would wreak on the American economy is much, much greater than any “anti-business” proposals a Democrat might offer — say an increase in corporate taxes. In fact, most of Kamala Harris’ proposals are closer to center-left than from the Bernie Sanders wing of the party. Some continue the efforts of the Biden administration to invest in the American economy in ways that yield big results — in education, training and health. The expanded child tax credit helped cut childhood poverty by 30 percent for the year it was in place, and we know that investments early in life yield powerful benefits even economically. Beneficiaries grow up to earn more than they would have otherwise and to be less of a burden on taxpayers. Similarly, infrastructure investments are much needed and long-delayed.
But the Biden-Harris administration has also joined the new vogue for government intervention to pick winners and losers, with mixed success. Having campaigned against Trump’s China tariffs, Biden largely kept them. One of Trump’s strongest lines in his debate with Harris was to point out that if she opposed his tariff proposals, how come she and Biden have kept most of them? Recently, the Biden administration completed an exhaustive review of Trump’s tariffs, and it showed the tariffs had been fairly ineffective in changing China’s behavior and in revitalizing American manufacturing. And yet, the administration concluded that the tariffs should be kept because maybe at some point they would work.
The Biden administration has wisely blocked China from getting some of the West’s highest-end technology that has military applications, including, crucially, computer chips. But in trying to revive chip manufacturing in the United States, the White House has pledged billions of dollars (almost $20 billion promised in grants and loans) to U.S. chipmaker Intel. Meanwhile, Intel is in free fall, hemorrhaging customers and cash, its stock price so low that it is now becoming a target for takeover. Intel has failed to adapt to a changed technology landscape, but it is, sadly, the perfect candidate for government money. It is big, respectable, with a storied history, and its CEOs are smooth-talking bureaucrats. Intel seems to be on its way to becoming Boeing, a company that exists largely as a ward of the state.
Both Trump and Harris have plans to address the acute shortage of housing. Trump’s, as usual, is deeply worrying, if you believe he’ll actually carry it out. Seeking lower mortgage rates, he might pressure the Federal Reserve to cut interest rates, as he did when he was president. Harris offers a mix of subsidies to increase supply and demand and also expanded rent controls. Both candidates are wrong, and both should instead take a look at a recent experiment, in our hemisphere, which has had stunning initial success. Argentina’s president, Javier Milei, scrapped his country’s rent control law, among the world’s strictest. As a result, supply of rental housing has increased by 170 percent in Buenos Aires, and rents are down 40 percent by one estimate.
In an age when government intervention is all the vogue, let’s not forget that markets are ultimately what create enduring growth and efficiency. No one needs more reminding of that than the celebrity-businessman in this race.
