How Donald Trump would wreck the US economy

02 March 2016 7:30 pm

So after Super Tuesday, it looks like it’s all over bar the delegate counting. The results tell us that New Yorkers Hillary Clinton and Donald Trump will be up against each other in the November presidential election.

Let’s leave aside the fact that Trump, as leader of the party of Lincoln and Reagan, has been conducting a racially-charged, divisive, and disingenuous campaign.

Let’s just do a hypothetical and assume Trump wins. What impact would it have on the US economy?

Now Trump claims, despite his numerous business failures which I documented here, that he will make America great again, all because of the supergenius and negotiating prowess of Donald J. Trump.

But how do we assess Trumponomics?

First, Trump wants to replace Obamacare with a system where health insurers compete across state lines. But here is where it doesn’t make business sense. As critics point out, selling insurance in a new region or state takes more than just getting a license and including all the locally required benefits. It also involves setting up favourable contracts with doctors and hospitals so that customers will be able to get access to health care. Establishing those networks of health care providers can be hard for new market entrants.

Trump also wants tax cuts which, according to a Wall Street Journal analysis, would cut federal revenue by $9.5 trillion over a decade and boost the after-tax incomes of the wealthiest households by an average of more than $1.3 million a year. A Centre for a Responsible Federal Budget analysis of Trump's economic plan finds it would double the national debt over the next decade. Trump would say his tax cuts will economic growth. But according to CRFB analysis, it would require the economy to grow as fast as 9 per cent a year for a decade to make the Trump plan revenue neutral and 11 per cent to actually balance the budget. That’s just impossible.

Trump has promised to round up and send home some 11 million undocumented immigrants. But the American Action Forum, a think tank led by former Congressional Budget Office boss Douglas Holtz-Eakin, has estimated it would take between $100 billion and $300 billion to arrest and remove them all, a 20-year process.

Larry Summers makes the point that a Trump presidency would affect the global economy. A concern that the US was becoming protectionists and isolationist could easily undermine confidence in many emerging markets and set off a financial crisis. A growing sense that a protectionist demagogue could soon become president of the United States would surely introduce great uncertainty at home and abroad. The resulting increase in risk premiums might well be enough to tip a fragile U.S. economy into recession.

As Martin Wolf writes in the Financial Times, the American people will have to decide what sort of human being they want to put in the White House. The implications for them and for the world of this choice will be profound