The Glaring Contradiction at the Heart of Donald Trumps Economic Policy

[elleng]

'Campaign promises are easy. Governing is hard.

It is a truism that Donald J. Trump and his team will soon learn. And a fascinating example has emerged since the election, courtesy of global currency markets. It is a study in the kind of complex trade-offs that Mr. Trump rarely grappled with during his campaign but will face many times a day in the Oval Office.

A centerpiece of Mr. Trump’s campaign was the United States’ trade deficits. He pledged to eliminate them and create a resurgence in American manufacturing.

He has also pledged tax cuts, infrastructure spending and deregulation. That set of policies has led markets to expect speedier economic growth and thus higher interest rates in coming years. That, in turn, is driving the value of the dollar higher on currency markets. Since Election Day, the dollar is up 2.6 percent against an index of six other major currencies. The value of the Mexican peso has fallen 10 percent against the dollar, a remarkable swing for the United States’ third-largest trading partner. . .

But let’s imagine that Mr. Trump follows through on the policy mix he’s hinted at so far: a combination of loose fiscal policy (think more spending on defense and infrastructure, and tax cuts) and tighter monetary policy (the Federal Reserve raising interest rates faster than had seemed likely before the election). At that point, the dollar could move more decisively higher, creating a tension that the president and his advisers would have to resolve one way or the other.

As a rule of thumb, said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, a 10 percent rise in the dollar would be expected to increase the current account deficit (a broader concept than trade deficit, but closely related) by 1 to 1.5 percent of G.D.P. in the ensuing two to three years.

In that scenario, Mr. Trump’s pledge to eliminate the $500 billion United States trade deficit would have just become $180 billion to $270 billion harder.'>>>

http://www.nytimes.com/2016/11/18/upshot/the-glaring-contradiction-at-the-heart-of-donald-trumps-economic-policy.html?

[guillaumeb]

1. Plus the increase to the deficit caused by the massive tax cuts.

And as these tax cuts cause Federal deficits, the states will receive less from the Federal Government, causing them to increase taxes or cut spending. Supply side economic nonsense part Two. All one has to do is look at the economy of Kansas to see what is coming on a Federal level.

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