Like it or Not, Trump Holds True to His Word on Economic Policies

During a presidential campaign, candidates make dozens or even hundreds of promises. In recent years, the American people have become increasingly cynical about campaign promises; no president in recent history has kept ever promise made during the election cycle. However, thus far, President Trump has demonstrated that he plans to remain true to his word regarding his economic policies.

Trump Is Keeping Promises on Economic Policies

Throughout his campaign, Trump voiced his concerns that the economy was in bad condition. He cited several reasons for the country’s economic woes, including lopsided trade agreements, excessive government regulations, an income tax model that discouraged investments in jobs, a declining gross domestic product and out-of-control government spending. He pledged that he would push through the necessary reforms to restore the economy. So far, Trump has been taking steps in a direction that indicates that Trump plans to keep his promises on economic issues although he has tempered his rhetoric somewhat on the Affordable Care Act and immigration policies.

Trump’s Stance on Government Regulations

Trump has made no secret of his desire to eliminate up to 70 percent of the federal regulations that he claims are hampering business growth and job creation. He has already signed an executive order that requires federal agencies to eliminate two regulations for every new regulation they enact. According to the Washington Times, the order will also make the director of the Office of Management and Budget responsible for ensuring that agencies do not enact rules with regulatory costs that will negatively impact the economy. If a new rule carries a higher cost, it must be offset by reducing the costs on existing rules equivalently.

Throughout his campaign, Trump expressed his unhappiness with the Dodd-Frank, especially the regulations on bankers that he believes are making it difficult for businesses to obtain loans. An article published by Fortune in May 2016 quoted Trump as stating that his planned changes would come “close to dismantling” the Dodd-Frank. One of his first acts after taking office was to sign an executive order directing the Secretary of the Treasury to review the law.

Trump’s Stance on Trade Agreements

While campaigning, Trump repeatedly blasted a variety of trade agreements, including NAFTA and the trade agreements with China and South Korea. So far, most of his actions have been verbal, but he did sign a presidential memorandum stating that the United States plans to begin its withdrawal from the Trans-Pacific Partnership. The TPP is a trade agreement between 12 nations, including Mexico, Canada, Australia, Vietnam and Japan.

Why Trump’s Economic Policies Matter

The logic behind Trump’s economic policies involves the basic concepts of how nations drive economic prosperity. When a nation increases its gross domestic product, that nation has a greater ability to generate revenues from taxes through job creation. The GDP depends on investment growth, net exports, growth in federal spending and consumption growth. Experts estimate that every additional point of GDP growth is equivalent to between 1.2 million and 1.3 million jobs.

To illustrate, in 1974, the GDP dropped by 0.5 percent over the previous year; the unemployment rate was 7.2 percent. One year later, the GDP declined another 0.2 percent, and the unemployment rate increased to 8.2 percent. From 1976 through 1979, the GDP rose every year and the unemployment rate dropped or stayed the same. In 1979, the GDP increased 3.2 percent and unemployment was at 6 percent; in 1980, the GDP dropped 0.2 percent and unemployment rose to 7.2 percent.

In 2011, the GDP increased 1.6 percent; the unemployment rate was 8.5 percent. The GDP remained lackluster from 2012 through 2015. In 2015, the GDP rose 2.6 percent. Although the unemployment rate was approximately 5 percent, the Economic Policy Institute has estimated that this rate does not include approximately 2.2 million workers who have used up their unemployment benefits, are not employed and who have abandoned efforts to find a job. If these “missing” workers were included, the unemployment rate would actually be 6.2 percent.

Trade Deficits and Regulatory Costs Affect the GDP

There is a direct correlation between GDP and both regulatory costs and trade deficits. The National Small Business Association recently conducted a survey that found that the average small-business owner spent an average of $12,000 annually on regulatory compliance. A report placed the costs much higher, estimating that regulatory compliance cost an average of $30,000 per employee for small businesses and an average of $20,000 per employee for all businesses.

Increased regulations have also made it much more difficult to start a business in the United States. According to studies conducted by the World Bank, the United States ranks 51st on for “ease of starting a business,” down six places since last year and dropping from third place just a decade ago. New Zealand and Canada held the top two slots, Australia was ranked seventh and the United Kingdom held the 16th place.

The issues related to trade deficits are a bit more complex, but there are two ways that trade deficits hurt the economy. First, they eliminate domestic manufacturing jobs; the Economic Policy Institute estimates that 2.4 million manufacturing jobs were lost between 1979 and 1994 as a direct result of trade deficits. Second, trade deficits depress wages; workers who lose manufacturing jobs typically take jobs in service industries at lower wages, but imports from countries where wages are much lower also drive down wages in the United States.

Why Trump Plans to Renegotiate Trade Agreements

Trump argues that the current trade agreements benefit the other countries much more than they benefit the United States. According to a policy paper prepared by two of Trump’s financial advisors, NAFTA, which was supposed to create 200,000 new jobs in America within two years has actually resulted in the loss of 850,000 American jobs. The agreement negotiated with South Korea in 2012 was supposed to result in 70,000 new jobs, but has instead resulted in the loss of 95,000 jobs.

Trade agreements are also problematic when trading partners utilize a value-added tax system. While the United States depends primarily on income taxes, most of the nation’s key partners rely on VAT. The VAT is a tax that can effectively be a tariff on imported goods. For example, when a company in the United States exports goods to Mexico, Mexico tacks on 16 percent for VAT. However, when Mexico exports goods to the United States, the company gets a rebate on its domestic VAT paid. American corporations have to absorb the VAT on goods they export, and they do not receive any relief on their income taxes.

Trump’s economic policies have been met with both criticism and support. The issues are complex, but if you would like to learn more, you can find many informative articles on the economy at the Personal Money Store.

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