Author : The Econimist
Posted : May 11th 2017
THERE is such a thing as Trumponomics, President Donald Trump has told The Economist. At its core, he said: “It really has to do with self-respect as a nation.”
In a wide-ranging interview in the Oval Office Mr Trump included moments of America First nationalism familiar to anyone who saw him rail against multilateral trade pacts, or accuse China of economic “rape”, during the campaign. But he also included hints of dealmaking pragmatism, and a willingness to see government deficits soar, as the near-term price of tax cuts.
Breaking with aides who previously claimed that higher growth will pay for a tax-cutting plan that they outlined in April, Mr Trump freely admitted that deficits might increase in the short-term—two years is his optimistic prediction. This deficit-fuelled stimulus, which he called “priming the pump”, “is OK, because it won’t increase it for long,” the president said. “What you have to do is you have to put something in before you get something out.”
Speaking alongside his boss in the Oval Office the treasury secretary, Steven Mnuchin, added that economic growth under the Trump administration could increase revenues by as much as $2trn over a ten-year period.
Mr Trump was more optimistic still, saying he believes that his team’s growth projections of 3% are “low”. But such expansion is not possible “if your companies are leaving the country because taxes are too high”.
Independent analysts predict that government revenues would plunge if Congress were to approve a sketch-outline of tax reforms released by Team Trump, featuring a corporate-tax rate slashed to 15%, a special repatriation tax break for cash held by companies overseas and other changes that mostly favour the rich.
Mr Trump disputed that the wealthiest would be the biggest winners from his plans, noting that they would lose the right to many deductions—though he would say only that his team is “contemplating” the fate of a valuable tax break, which allows interest payments to be offset against corporate taxes.
Mr Trump, a man who knows his taxes, waxed lyrical about the merits of the Value-added tax (VAT) he pays on such foreign holdings as Turnberry, his golf course in Scotland. Creating a VAT would bring America usefully into line with most other countries, such as Mexico, potentially easing some trade disputes, he suggested. But he does not think that the concept of a VAT can be sold to Americans, who are used to income-based taxes.
There are limits to Mr Trump’s dealmaking. If Democrats demanded the release of his tax returns as the price for their support on tax reform, the president would refuse. Such a trade “would be disrespectful of the importance” of a tax deal, he said. He held out the prospect that he might release his tax returns after his presidency: “Because I’m very proud of them actually. I did a good job.”
Echoing his campaign rhetoric, the president called the North American Free-Trade Agreement (NAFTA) a horrible deal that cost America millions of jobs. He also asserted that his country “always” loses cases when they come before a tribunal that he described as a NAFTA “court” based in Canada and staffed by two American and three Canadian judges. In fact, the nationality of five-member NAFTA tribunals generally alternates with each new dispute.
But Mr Trump conceded that he had changed his mind about withdrawing from NAFTA, a few days earlier, after the prime minister of Canada and the president of Mexico telephoned him to ask if he would renegotiate the pact instead. His plan to serve notice that America was abandoning NAFTA was no game, Mr Trump said, but it would have been “very disrespectful” not to give Mexico and Canada one last chance to make the deal more fair. He said that this would require “massive” changes, including reciprocal import taxes if need be, aimed at bringing trade relationships between America and its neighbours closer to balance, though this could take a “fairly extended period of time”.
Mr Trump sees no need for overall levels of legal immigration to come down, instead wanting America to move to a merit-based system, similar to Canada’s, in which skilled migrants are vetted more thoroughly and commit to staying off government subsidies for five years. For the many farms that employ migrant workers without legal papers, Mr Trump has a work-visa scheme in mind. “We like those people a lot,” he declared.
He has also softened his line on China. He claims that China ceased manipulating its currency as soon as he complained about this on the campaign trail, and no longer plans to challenge the Chinese leader, Xi Jinping, on currency manipulation at a time when he is seeking his help to curb North Korea’s nuclear programme. Imagine how a more aggressive approach might sound, he said: “Now think of this. I say, ‘Jinping. Please help us, let’s make a deal. Help us with North Korea–and by the way we’re announcing tomorrow that you’re a currency manipulator, OK?’ ”
As a candidate, Mr Trump mocked leaders who worry about showing respect to foreign powers like China, vowing to win so much that America will be tired of winning. As a president, he talks of “flexibility”. “Will I settle for less than I go in with? Yes, I mean who wouldn’t?” he breezed. It is a deeply transactional worldview. And to make it work, all he needs is results.