President Trump understands, more so than some politicians, how the economy works. He understands that prosperity builds on the foundation of a free-market economy with minimal government intervention. This is evident in his tax cuts and deregulation approach. In fact, both of these factors contributed to a robust U.S. economy that set records for employment, income and in the stock market before COVID-19. Both of these policies deserve a B rating. However, it is also undeniable that President Trump’s approach to trade protectionism is lacking. Many of his imposed tariffs have had negative effects on the U.S. economy, therefore this policy deserves a D rating. Thus, when considering President Trump’s economic policy holistically, he deserves a C+ rating.
Tax Cuts: B
The issue of tax policy hits close to home for me, as my home country, Japan, has been economically damaged by tax increases one after another. According to economist Arthur Laffer, “You can’t tax an economy into prosperity.” His logic behind this quote is that the economy revolves around incentives; tax rates have a threshold in which any larger tax rate will just decrease the incentive to work and lower the tax revenue. President Trump’s Tax Cuts and Jobs Act (TCJA) of 2017 reflects exactly that. Not only did the TCJA lift the burden for individuals and corporations by lowering taxes, but it also increased the overall Internal Revenue Service (IRS) collections year after year, Tax Policy Center data shows.
Another important aspect of the TCJA is that by lowering the corporate income tax rate from 35% to 21%, the U.S. corporate tax rate reached a more globally competitive level and brought back $876.8 billion from overseas as of June 2019, as reported by Bloomberg. TCJA reduced incentives for companies to go overseas and created millions of jobs since November 2016.
In terms of deregulatory actions, the Trump administration has cut approximately eight regulations for every new regulation created, in turn making U.S. businesses more competitive in the global economy. David R. Henderson, a research fellow with the Hoover Institution and a former economic adviser to President Reagan, wrote in an article, “Just as the power to regulate is the power to destroy, the power to engage in judicious deregulation is the power to allow creation.” One case of Henderson’s “creations” involves the FDA: deregulating the entry of generic drugs. This measure led to the FDA’s approval of 1,617 generic drugs over 20 months of the Trump administration, a 17% increase over its preceding 20 months, a WSJ editorial reported, saving Americans $26 billion as of July 2018. Another example is one of the automotive industry where the Safe Affordable Fuel Efficient (SAFE) Vehicles rule was finalized, reducing the price of new cars and making them more affordable for the global market. While it is true that certain governmental regulations help protect the environment or stabilize the financial system, Trump’s deregulatory policies contributed by reducing unnecessary market intervention.
Trade Protectionism: D
Trump has advocated for trade protectionism and imposed several tariffs on imported goods from China, Mexico, and other trading partners, but imposing tariffs has a harmful effect due to retaliatory tariffs. One argument for imposing tariffs is to support manufacturing jobs in the U.S. and protect them against foreign competition; another argument is that tariffs are necessary for negotiating better trade agreements. However, a paper from the Federal Reserve Board (FRB) shows that the negative effect of tariffs such as retaliatory tariffs by U.S. trading partners outweighs the positive effect for import-competing industries. Trade protectionism policies must be carefully assessed so that the overall positive effect can exceed the negatives. For the Trump administration, it didn’t. Since 2019 the U.S’s trade deficit with China has skyrocketed every year, reaching $84b in August 2020.
In conclusion, President Trump should’ve taken a multilateral approach to trade protectionism. Despite this, we can’t deny the overall success of his pro-business policies such as tax cuts and deregulation that are positive “stimuli” for our economy. When considering President Trump’s economic policies holistically, it is evident that he succeeded in some areas and failed in others. Because of this, I grade his overall economic policies a C+.