Can Donald Trump deliver the change he promised?
By Dwyer Gunn
(Photo: Kevork Djansezian/Getty Images)
For much of this election season, traditional politicians, journalists, and pundits have been trying to understand the appeal of the man who will soon be the president of the United States. Two competing narratives have emerged: it’s all about race, or it’s all about the economy.
The likely truth is that neither narrative is 100 percent right, or 100 percent wrong. For example, a large-scale study of Donald Trump’s supporters in the Republican primaries found that they were not particularly poor, although they were disproportionately drawn from “racially isolated communities with worse health outcomes, lower social mobility, less social capital, greater reliance on social security income and less reliance on capital income.” Likewise, many of the working-class white voters in Pennsylvania, Wisconsin, and Michigan who delivered the White House to Trump presumably voted for Barack Obama in 2008 and 2012 (Obama carried all three states). This suggests racial anxiety was not the only force shaping this election.
Throughout the campaign, many of Trump’s grandest promises have been about economics and jobs. Even the president-elect’s hard line on immigration was at least partially economically motivated. For all that, though, his actual economic policy proposals have been a bit vague, and he has frequently contradicted himself in the past.
So what would a Trump economic plan agenda actually look like? And, even more important—given the nature of his victory—what will it do for low- and middle-income working-class voters (who I’ll define as those without a college degree)?
Some of Trump’s most fiery, and well-received, rhetoric has come on the topic of international trade and free trade agreements. Bits of this language actually made its way into the official party platform of the Republican Party, which has historically been resolutely pro-trade.
Trump has vowed to “tear up,” or at least dramatically re-negotiate, our existing trade agreements and threatened to impose high tariffs on imports from countries that engage in unfair practices and on products made by American companies that move factories offshore.
The evidence is pretty clear that an out-and-out trade war — in which countries (such as China) retaliate against American tariffs by imposing their own tariffs on American-made products — would be bad for everyone. Prices on many consumer goods could increase, which would hurt lower- and middle-income Americans especially. And if consumers in other countries stopped purchasing American-made goods, employment in the U.S. would actually fall.
There are, of course, lesser actions on trade that could be taken — such as the Obama administration’s duties to be imposed on “dumped” steel imports from certain countries. But it’s unclear that these kinds of actions would actually do much to improve the economic outlook for places like the Rust Belt. For starters, imposing tariffs on, say, products made in China will likely just result in companies moving their production to other countries with lower costs of labor than the U.S. (i.e. Vietnam or Bangladesh).
Of course, trade isn’t the only factor that has reduced manufacturing employment in the U.S. Here’s what Alana Semuels of The Atlantic had to say on the topic this past June:
On top of all this, as trade experts like Daniel Drezner have pointed out, the U.S. manufacturing sector isn’t exactly in need of a revival: Output has actually grown since 1990. But technology has made the sector more productive, so even as factories produce more, they need fewer people. Economists have calculated that 80 percent of the loss of manufacturing jobs in the U.S. is due to technological progress, while just 20 percent is due to trade, Bown said. And as I’ve written about, those companies that do bring manufacturing back to the U.S. aren’t creating good jobs anyway — they’re just setting up shop in places with cheap labor and hiring temp and contract workers. Closing American borders to trade won’t change any of that.
Taxes and Regulation
Trump’s tax proposals, which line up largely with the proposals of Congressional Republicans, call for a simplification of the tax code, reductions in federal tax income rates, a 15 percent ceiling on the corporate tax rate, and the elimination of various tax loopholes. Most Americans would see an increase in their after-tax income, although the largest benefits would accrue to the highest earners. (One analysis suggests that some middle-income families would see an increase, though the Trump campaign disputed the findings and promised the plan would be tweaked if necessary.)
Assuming the plan is modified accordingly, low- and middle-income Americans would benefit from the lower tax rates and the possible economic growth that tax reductions might unleash. The Tax Foundation, a right-leaning think tank, estimates that the Trump tax plan would increase gross domestic product (GDP) by 6.9 to 8.2 percent, increase wages by 5.4 percent, and would result in 1.8 to 2.2 million additional jobs. (Their analysis does not account for changes in spending, trade, and immigration policy, all of which have the potential to dramatically affect GDP growth.)
There is, however, a big catch: The Trump tax plan is expensive — the Tax Foundation’s analysis indicates it would reduce federal tax revenues by $2.6 to $3.9 trillion dollars, even after all that economic growth is accounted for. And the Trump campaign has been pretty vague as to how these tax cuts would be funded. If Congressional Republicans insist on paying for these tax cuts by cutting government spending, the results could be absolutely disastrous for working-class voters who rely on things like public schools, student loans, tax credits like the Earned Income Tax Credit, and (sometimes) food stamps and welfare benefits.
On the other hand, Congressional Republicans, traditionally the party of fiscal responsibility and balanced budgets, could decide to hop on Trump’s economic populism bandwagon and cut taxes without cutting government spending, substantially increasing the deficit. It’s a bit of an open question as to how that will affect both the overall economy and working-class voters. Liberal economists, led by Larry Summers, have vocally advocated for a program of aggressive fiscal stimulus and a decreased focus on deficits.
Trump’s economic plan also calls for “scaling-back years of disastrous regulations unilaterally imposed by our out-of-control bureaucracy” and eliminating many workplace and environmental regulations, including the Clean Power Plan. It’s no doubt true that the elimination of some of these regulations might help some working-class Americans in the near-term, particularly small business owners. It’s also true, however, that many of these regulations, such as new Obama administration rules about overtime pay, were instituted to protect working-class folks from unfair employment practices and unsafe workplace conditions. The effects of de-regulation on these workers will depend greatly on precisely which regulations are kept and which are eliminated.
The president-elect has also promised a massive infrastructure spending project, to the tune of $1 trillion. It was, in fact, one of the first items Trump mentioned in his victory speech. “We are going to fix our inner cities, and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” he promised. “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”
Infrastructure spending is good for the economy and working-class voters, although traditional deficit hawk Republicans aren’t always in favor. Here, he could potentially find some common ground with Democrats: Hillary Clinton and Bernie Sanders called for big infrastructure spending projects, and it’s a popular idea among liberal economists.
But again, the devil is in the details. Trump’s plan, which his advisors say is revenue-neutral, seems to rely on both privatization and public-private partnerships (the details are a bit murky). While the Trump plan might still increase employment in the infrastructure industry, liberal economists worry private investors will only be interested in investing in infrastructure projects in wealthier areas (the water pipes in Flint, Michigan, for one, aren’t likely to receive funding). Conservative economists, meanwhile, are skeptical of the accounting.
The future president of the United States won the gig by making quite a few big promises that resonated with working-class voters. It’s an open question whether he can actually deliver on those promises.