Thoughts on the Economy and President Trump

Below is what I wrote in the Center's economic forecast about 6 weeks ago.  It still reflects my thoughts.

If Donald Trump is elected, the near term economic effects are highly uncertain. If he were to follow through on promises to impose tariffs on certain imported goods, threaten leaving the World Trade Organization, and restrict immigration, a Trump presidency would have negative effects on both the U.S. and global economy. However, other parts of Donald Trump’s proposals could stimulate the U.S. economy in the near-term and he is likely to want to do what he can to give the economy an immediate boost so that voters can feel the effect of his election. For example, he proposes a large tax cut, an even larger investment in infrastructure than Clinton, increased military spending without any offsetting proposals to significantly reduce government spending in other areas. If Congress were to go along with these elements of the plan, the economy would receive a near-term jolt from increased deficit spending while the federal debt would grow substantially over time. While stimulative in the short-run, the increase to the deficit will create long-run problems for the U.S. economy, especially considering that the current deficit is already very high by historic standards. Overall, the near-term economic effects of a Trump presidency are highly uncertain between the effects of global instability and domestic stimulus. However, the long-term economic effects of his approach are seen as negative in the view of most economists. 

While polls show slightly more voters trust Donald Trump over Hillary Clinton to manage the economy, no modern Presidential candidate has received less support from professional economists than Trump. Leading Republican economists who have consistently served as advisors to Republican Presidents, such as Martin Feldstein and Greg Mankiw, have publicly denounced Trump’s economic platform. Trump placed third behind Clinton and Libertarian Gary Johnson in a poll of the National Association of Business Economists. The Economist magazine lists his potential election as one of the top threats to the global economy. Trump certainly did not win over economists during the first Presidential debate when he criticized highly-respected Fed Chair Janet Yellen for “playing politics” with interest rates, raising concerns that he could try to reduce the independence of the Federal Reserve. 

I should note that the last forecast assumed a Clinton victory, so there will be changes in our January forecast.  By then, we may have a better idea of how great the potential is for domestic stimulus in the near-term.  A large tax cut seems a certainty, but will the Republican Congress go along with a big-spending Trump infrastructure plan?  We may also have a better idea of the speed and extent of unwinding Obamacare; protectionist, anti-trade policies; and foreign relations.  One thing is clear, the uncertainty over the 2017-18 economic outlook is much higher than it was a few days ago.

As for the Valley Economy, there are a few additional issues that loom large.  First, repealing Obamacare has the potential to have some significant negative economic effects in the Valley - you will be hard pressed to find a region that has seen a bigger change in the number of insured individuals and overall dollars flowing into healthcare.  Health has been one of the fastest growing sectors of the Valley economy in regional years, and this could slow substantially.

The agriculture sector could be hurt by a much feared "trade war."  If the U.S. starts implementing tariffs on manufactured goods as Trump has threatened, U.S. agricultural products would be a likely target for retaliation from trading partners.  Immigration changes could also affect agricultural labor markets.  The industry is already facing serious labor cost challenges from rising minimum wages and overtime rules, but a sudden change to immigration policy could hit the agricultural labor markets even sooner.  Some isolated parts of the Valley ag might see some benefits from relaxed environmental protection but the impact of these policies are actually much smaller than the political rhetoric around them suggests.  The larger industry-wide issues of trade and labor will be more impactful.

Finally, will the Valley see any of the much-hyped infrastructure wave.  Perhaps.  Tops on my list would be converting highway 99 to an interstate highway with a series of significant upgrades.