Following his surprise victory in November’s election, President Trump now requires focus on his stated aim of ‘Making America Great Again’. In practice this will mean making Americans wealthier, although he seems unlikely to succeed long-term.
In the short-term an increase in growth is likely. With control of both Houses of Congress as well as the White House, Republicans will pursue their tax reform agenda – in reality this means significant tax cuts and encouragement for American companies (most notably Microsoft, GE and Apple), which collectively hold $2.5 trillion of cash abroad, to repatriate funds.
Also in the pipeline is hefty infrastructure spending – Trump has talked about American infrastructure falling into “disrepair and decay” – although plans are hazy.
These changes are likely to lead to further cash in the economy and a short-term boom, which is one of the reasons the Dow Jones is currently at a record high. The administration’s aim of 4 percent annual growth could be met initially.
Fleeting success at best
Scratch beneath the surface though, and this improvement will be transient. Whilst most accept the American tax code needs reform, it is questionable whether the Trump administration will do it in the most efficient way.
And the infrastructure spending will likely either be done by paying up front (putting strain on a federal budget deficit already at over 3 percent of GDP) or by deferring the cost by some form of PFI-style financing (pushing the cost onto future generations).
No long-term solutions
Most importantly, unless done cleverly, these are short-term fixes, and there is little sign the Trump administration can solve the underlying problems.
It is true that old school manufacturing jobs are under pressure, but this is primarily a result of automation rather than free trade – Germany, despite its exporting prowess, has also seen a significant decline in manufacturing jobs. Visit a production plant today and you see laser-guided technology performing intricate jobs at a furious pace.
Even if plants choose the US over Mexico, the days of thousands of men working on a production line are gone. And Trump’s plan to put a whopping import tax on Mexican goods will lead to several losers – chief amongst them the American consumer.
Any economic success the administration has is therefore likely to be short-lived unless they focus on the real problems in the economy – amongst them a chronic shortage of modern economy skills amongst blue-collar workers.
Ironically, these are the very people whose votes in the Rust Belt put Trump in power.