In recent months, details of Donald Trump's economic proposals have trickled down. Interestingly, Trump's ideas sound an awful lot like George W. Bush's. In fact, Trump as converted several conservative pundits into advisors. That's not necessarily what would cause a massive recession though.
What we have also learned from interview after interview, is that America's corporate and financial leaders are very wary of a Donald Trump Presidency. Nations around the world, especially China and Mexico, two huge trading partners, are also worried. That worry could translate to a massive economic downturn.
In general, I have stayed away from politics, because I am more interested in helping anybody who wants a better life secure it. However, this Presidential election is extremely important. Depending on who we elect, Hillary Clinton or Donald Trump, Americans will either continue to see slowly improving standards of living despite "slow growth forever" or, once again, the 99% will get knocked back.
Originally, this piece was going to be an agnostic comparison between the two candidates. As I did more research though, it became apparent to me that if Donald Trump becomes President, the nation faced far greater economic risks than if Hillary Clinton does. That doesn't necessarily mean that those risks would manifest in financial disaster, however, given the already low levels of business investment by corporations and other mediocre economic measurements, I think it is highly likely we could in fact see a very deep recession under Donald Trump.
Here are two pieces for broader background that I suggest reading as you prepare to vote:
Where Hillary Clinton and Donald Trump Stand on the Economic Issues in the Wall Street Journal
Trump and Clinton on the Economy: A Breakdown in the USA Today
There are dozens more articles, I suggest browsing through MarketWatch and Bloomberg which are both free and have solid reputations.
Here is my short synopsis. I do not dwell on a lot of details. However, the reaction of executives and bankers weigh heavily on my consideration. Also, it is clear to me that Trump's tax and spend policies are completely irresponsible and ineffective.
Getting to Know Donald Trump
Knowing what is in Donald Trump’s mind is a difficult task given that he has no Congressional voting record, nor experience as a Governor. A year ago, CNN asked “what exactly is Donald Trump’s economic policy?” Even today, we are not totally clear the directions that a Donald Trump Presidency would take us. We do have some clues however.
Here are what Trump’s central economic messages have been so far:
- Poorly negotiated trade deals have sold Americans out.
- Illegal immigration is hurting the labor market.
- The Affordable Care Act needs to be replaced.
- The tax code is a mess and needs simplification.
- There needs to be large tax cuts to high earners to stimulate growth.
- America’s infrastructure is crumbling and needs to be rebuilt.
- Wall Street has done more harm than good for average Americans.
All of these themes are resonating with a sizable portion of the population.
We all know that globalization has been handled mediocrely by Washington D.C. But the idea that the United States has been a net loser is false. We have gained massive wealth through trade and higher standards of living. However, many have indeed been set back with little help to catch back up.
The angst by those who are struggling is real and it is valid. As a nation, we need to help our fellow citizens take part in the global wealth generation that America is getting a substantial piece of. No longer can we allow almost half of the adult population to earn around $30,000 per year. With the cost of living, it is virtually impossible to raise a family on anything less than $60,000. That is the core of many Trump supporter's angst.
In a recent speech in Pennsylvania, Trump laid out some of his criticisms of economic globalization and policies that promote free trade. The core message is that trade agreements, such as NAFTA, have been a betrayal to American workers that have served to enrich a financial elite and their patrons – often the politicians who passed those agreements. Trump’s view stands in contrast to most of the Republican establishment.
Interestingly, some of his criticisms are very similar to those cited by former Democratic Presidential candidate Bernie Sanders. This makes sense as Trump has reached out directly to those who have supported Sanders.
Many Trump supporters point to the U.S. trade deficit. Much of that is due to the strong dollar, which is something we do not want to give up. So, while the United States is the biggest importer in the world, we are also the world’s biggest exporter – not China. American's ability to use dollars to buy goods from abroad directly improves standard of living.
Trump is clearly an outlier versus decades of previous policy. While I hesitate to call him protectionist as some have done, he would clearly take a different approach to cutting trade deals. Renegotiating deals like NAFTA could have a massive impact on trade across the Mexican and Canadian borders.
If a President Donald Trump incites the Chinese, there is a two-step process that China can use to retaliate. I will cover this in a series on MarketWatch, however, the short of it is that the Chinese could crush the dollar in the end. The Chinese would feel some short-term pain, however, not as much as Americans.
I know the recant, "but that would hurt them too, so they won't do it." That's wrong. China wants to switch to a consumer led economy. The first thing they would do is clear their inventory into the strong dollar. Then they would crash the dollar by selling all of our debt they own. This would, at least for a period, give them a much stronger currency and attract foriegn capital. It would force us into a very deep recession as well. While we would recover eventually, it would be a long painful journey.
My suspicion and hope is that there are improvements that can be made to many deals without endangering trade. My belief is that Hillary Clinton is far more suited to working out those changes. She is simply more respected and experienced.
On taxes, while Trump agrees with most establishment Republicans that America needs sharp tax reductions, he is not in line with the types of tax-breaks that those such as Congressman Paul Ryan propose.
Trump wants dramatic simplification of the tax code by reducing certain tax breaks and having only four income tax rates of 25%, 20%, 10% and zero. He also wants to see corporate income taxes cut to 15%.
While I am all for lower taxes, especially on small business and the middle class, the evidence suggests that Trump’s plan could raise the national debt a tremendous amount over the next decade, up to $10 trillion by some accounts. Some of Trump’s new hires are currently working to bring the plan into better balance.
I simply can not support any more tax breaks for the richest 1% of income earners. In fact, many should pay higher taxes through the elimination of the "carried interest" exemption and other loopholes. Trump has some of that right.
However, Trump is very wrong to want to get rid of the estate tax. Called the death tax by critics, it is America's best tax. Most money subject to the estate tax has never been taxed before, about 60%, as it is appreciated investments. It is also a clear conflict of interest for him as it would save his family apparently around a billion dollars in taxes. Republican Teddy Roosevelt instituted the estate tax in order to prevent dynasties that control America. He was right to do so.
A better tax cut would be to raise the "standard deduction" by $500 or a $1000 as that would fall equally to all Americans, but benefit the lowest earners the most. The incongruent and irresponsible top heavy tax cuts that Trump (or anybody else) proposes are completely unworkable financially and frankly unethical.
Another large increase in the deficit and debt increase could crush the dollar. Once again I point out that the dollar is what helps maintain a relatively strong standard of living compared to most of the world even for poorer Americans.
Trump has also stated that we would like to spend to rebuild the American infrastructure which is trillions of dollars behind in deferred maintenance. This could clearly create jobs – as all politicians know, including Hillary Clinton who also proposes focusing on infrastructure – however, financing such programs is a major challenge for an increasingly cash strapped government.
The types of infrastructure that Trump supports are for the old economy. The U.S. needs to focus on smart grid and alternative energy investments.
Trump also believes that Wall Street needs to be reined in. While I know that there have been plenty of malfeasances by Wall Street, Trump might be a little late to the regulation party which has been running full force for seven years now. While I want a crony-free capitalist system too, the bigger problems are in corporate board rooms, not the brow beaten financial sector.
Of course, Trump favors the repeal and replacement of the Affordable Care Act. His proposed ideas so far revolve around allowing cross-state competition for health insurance. This sounds like a good idea to me as it allows broader choice and greater competition. Plus, it doesn’t make sense that people who live near state lines have a hard time choosing medical care that is literally minutes away. This should be doable within the Affordable Care Act however.
The repeal and replace mantra of Obamacare haters is wrong. The program has been a tremendous success at expanding coverage and helping keep Medicare solvent in the face of millions of new enrollees. The mantra should be to "fix it fast" so that the 2-3 million people who are suffering more expensive health plans are relieved. Repealing Obamacare would be a huge blow to the economy.
Trump has stated that he believes the stock market is in a bubble and is due for a crash. I don’t agree with that. I do see that there are portions of the stock and especially bond markets that are clearly over-valued (which is why I have a tactical component to my investment management process).
Right now, there is a floor under the market due to the Federal Reserve. Their quantitative easing programs, which were halted nearly two years ago, created money to fill the hole created by the financial crisis. With the stock market above the 2007 highs and new money in the system, the stock market measured by the S&P 500 (SPY), should not correct below the 1600-1800 range. If some policy or personality dramatically changes the rest of the economic environment, we could see that floor cracked. Trump is more likely to lead to that floor cracking.
If Donald Trump became President, he could drive up debts, kill healthcare for millions, create higher healthcare inflation and destroy trade.
Corporate executives see this as do the credit markets. If Donald Trump becomes President on some fluke this week, we could see a tremendous bear market set in quickly along with a recession. His remedies would problably not fix it, rather, all of the problems people point to now, would get worse.
For these reasons, I am voting for the imperfect Hillary Clinton. I am not completely confident in her and clearly she has her own conflicts, however, I do believe she wants to do right by Ameria in general and has a better chance at negotiating Congress than Trump.