“Make America great again” may be a catchy slogan but after Trump takes the oath of office today, they’ll become more than words.
The reality is it’s going to be a lot harder and messier. And it might take more years to achieve than the four that Trump now has.
First, there is the debate about Obamacare
There is not much agreement inside the GOP about what to do and what comes after repeal. Trump and some Republicans are advocating for a “repeal and replace” approach, while other Republicans support “repeal and delay.”
If Trump’s approach is pursued, it could have implications for the timing of the rest of his agenda. All around the world, healthcare policymaking is notoriously complex and time-consuming. Remember, it took Congress 14 months to pass Obamacare. And that was after more than 100 hearings in the Senate and 80 in the House. Obamacare managed to pass only on a party-line vote.
Also, the committees in Congress tasked to write at least part of the replacement bill will also be in charge of the tax reform bill, another complicated and formidable undertaking.
And finally, Trump has promised that a replacement bill will provide “insurance to everybody.” Of course, Trump may walk back from these comments.
What’s clear however is that this has increased the pressure for congressional Republicans to deliver a comprehensive, Trump-endorsed healthcare overhaul. And that might take longer than just 2017 to achieve. And Trump only has four years.
The next big one is infrastructure spending. Trump was constantly raising this on the campaign trail and it’s an issue where there is generally bipartisan support. But Trump has provided few policy specifics. The devil is in the details. Will the US government be pouring money into infrastructure? Or will it be giving companies tax cuts to build roads, dams, power stations and utilities? Given the ambivalence many Republicans have for increases in non-defense spending, Trump may need Democrats to help pass an infrastructure bill. It is not clear what the appetite for that would be among congressional Democrats. So this also could slip to 2018. Or maybe beyond.
And then there is a question of tax cuts. Trump and congressional Republicans want to address the country’s tax code to make it more competitive. What they can’t agree on is how they do this. House Republicans want to proceed with tax reform on the individual and corporate side. But Trump just wants tax cuts. Tax reform – simplifying the tax code, lowering rates and broadening the base – is notoriously more difficult and time-consuming than tax cuts. Why? Because it results in winners and losers. Yet, many would argue that only tax reform – not tax cuts – at this point in the economic cycle would lead to real improvements in productivity and therefore sustainable economic growth. So expect House Republicans to try to advance a tax reform package, at least initially.
But there is a long way to go from here to there. No bill has yet been written, and it is not clear whether Senate Republicans are on the same page as House Republicans, especially when it comes to more controversial topics such as the “border adjustment tax” which would tax imports and exempt exports.
Assuming tax reform is pursued (not just tax cuts), it will likely take longer than most expect given its complexity. It might also be a smaller package (e.g., rates not lowered as much) depending on where Republicans fall out on different controversial issues (e.g., the border adjustment tax). The market appears to be pricing tax reform to be completed in 2017. But the market has probably misread it again. There is a real possibility we won’t see a bill passed and signed by President Trump until at least 2018.
Bloombergpoints out that factory jobs aren’t coming back. Trump generated some of his strongest support in the Rust Belt and other areas that had been hit hardest by the decline in U.S. factories in recent decades. While manufacturing jobs have crept back up since the recession, the president-elect has pledged to do more. But positions that have been automated or moved overseas are unlikely to return. And in manufacturing, workers need more skills than before, so training programs and STEM education would need to ramp up. What’s more, if the economy continues to improve and the dollar strengthens, that will make American exports more expensive, adding to headwinds for US factories.
And there is no way he’ll be able to reduce the trade deficit. Trump has repeatedly labelled the $500 billion trade deficit a sign that China and Mexico have unfairly taken jobs away from American workers. He’s vowed to narrow that gap, threatening to impose tariffs that would make imports more expensive. That would hurt corporate profits, trigger inflation and slow down US growth. Add to that the likely court challenges and retaliation from other nations, a so-called trade war that could cost Americans millions of jobs. But consider another scenario: Trump’s trade policy proves benign and the U.S. economy continues to improve. The dollar keeps strengthening. That will make exports more expensive and imports even cheaper, probably widening the trade deficit.
Will the budget gap turn into a surplus? Fuhgeddaboutit An aging population and heavy defense spending have made it near-impossible for presidents to substantially trim the bills. While the deficit had been steadily narrowing since the recession ended, it increased in fiscal 2016 to 3.1 percent of GDP. Trump, the self-proclaimed “king of debt” is pledging big-league tax cuts and infrastructure investment. And that points to a widening gap.
Whether the US economy lives up to Trump’s pre-election promises remains to be seen. It’s the big unknown. It also means there might be a lot of people pissed off that Trump didn’t keep his promises.
