President-elect Donald Trump swept to victory in the biggest election shock in U.S. history. All the way through this divisive campaign, the polls predicted Hillary Clinton had it nailed. Nobody expected her to sail through to the White House on a golden ticket, but by the same token, most people didn’t take Donald Trump all seriously. At least not in the beginning. But all that changed a few days ago, when Donald Trump did something nobody expected him to. He channeled the disaffected voters of middle class America and persuaded them he could “make America great again”. Whether or not Trump can actually manage such a momentous task remains to be seen. He certainly has his work cut out. So what effect will a Trump presidency have on the U.S. economy?
President Elect Trump faces some serious economic woes. One in five American families is subsisting on welfare and wages are worth less now than they were in the 1970s. The number of U.S. citizens relying on food stamps has increased by more than 12 million since President Obama took office. In short, the U.S. economy is in dire straits. In the last twenty years, economic policies have helped the rich accumulate wealth at the expense of the majority. Globalization has caused the heartlands of America to suffer. Manufacturing jobs have disappeared and a large percentage of the population has been left behind. Shockingly, for one of the largest economies in the world, GDP has grown by only 2.1 percent.
Donald Trump has set out his vision. He plans to create 25 million jobs over the next ten years. To achieve this, he would need to increase GDP by 1.5 percent. Mr. Trump has promised to increase the number of manufacturing jobs to replace some of the five million lost over the last 15 years. However, since the decline in manufacturing is not restricted to the U.S. and is largely as a result of technological advances, it’s not clear how Trump intends to do this. He’s also promised to raise the minimum wage for U.S. workers.
In a bid to counter the disastrous effects of globalization on the American economy, Trump plans to introduce a regulatory framework, which he has referred to as an America-First trade policy. President-elect Trump is promising to get tough on trade deals with the likes of China and Mexico. He has called for a 45 percent trade tariff on goods imported from China and a 35 percent tariff on goods imported from Mexico. He says he will be renegotiating new trade deals and if he doesn’t get what he wants, he will walk away.
Tax cuts have featured heavily in Trump’s economic policies. Mr. Trump plans on cutting taxes for everyone, although it is mostly the rich who will benefit. He has proposed new tax brackets, with the tax for top earners reduced from 39.6 percent to 33 percent. No one earning less than $29,000 per annum will pay any income tax. He is also proposing to reduce federal corporate tax from 35 percent to 15 percent. Mr. Trump plans to spend significant amounts of government money on infrastructure and defense.
As he said in his victory speech, “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we’re going to put millions of people to work as we rebuild it.” It’s unclear where the money to pay for this level of investment will come from, given that tax revenue is about to be slashed and the U.S. dollar has fallen.
Prior to winning the election, Trump promised to repeal Obama’s Affordable Care Act, which would leave millions of Americans without health insurance and therefore access to healthcare. If he does decide to do away with Obamacare, the government would need to put something in place to protect vulnerable Americans and their families, which could prove to be very expensive. In addition, the funding required for public healthcare programs and pensions for an aging population is expected to balloon over the next ten years. Again, it is difficult to work out where the extra money will materialize from. Nobody knows what the future holds, but one thing is certain, unless Donald Trump works very hard to “fix” the U.S. economy, the chasm between rich and poor will only grow wider.
