Those policies are likely to more than offset a positive jolt from tax cuts that juice consumer and business spending.
Experts generally have tamped down forecasts that had called for a possible recession by 2018 based on the assumption that even a Republican Congress will pass only modified versions of Trump’s proposals. Some economists say the Federal Reserve is likely to forgo an anticipated interest rate hike in December and generally keep rates lower for longer, mitigating some of the damage to economic growth and financial markets.
“”It’s not a cataclysmic event for the economy,” says
In coming months, many businesses are likely to be gripped by anxiety.
“The uncertainty created by this shocking vote will cause businesses to be more cautious in their hiring and investment,” Zandi says.
The uneasiness will be greatest for multinationals that depend on exports for a large chunk of their revenue and businesses that employ both undocumented and documented immigrants, says economist Gus Faucher of PNC Financial Services Group.
Overall, Zandi expects the economy to grow an average 1.75% a year during Trump’s term, down from a 2% baseline, creating about 400,000 fewer jobs annually.
Here's a look at some of Trump's proposals and what they could mean for the economy:
Trump wants to slash taxes across the board for households by combining the seven tax brackets into three, in which the top rate would fall to 33% from 39.6%. All Americans would pay less taxes, but the biggest benefits would go to the wealthy, according to the
The savings should boost consumer spending — which makes up about 70% of economic activity — over the next two years, Zandi says.
Corporate tax rates would plunge to 15% from 35%, and the rate for smaller businesses that pay the personal rate would drop to 15%. That should help make the USA a more attractive location for multinationals. To partly offset the cuts, several deductions and loopholes for consumers and businesses are likely to be scrapped.
Tax revenue would fall by $6.2 trillion over the next decade, the TPC says. Trump says the shortfall could be closed by new revenue from a more vibrant economy and spending cuts. But Trump wants to preserve Social Security and Medicare and increase defense spending. That leaves far less to chop and almost certainly means higher deficits, Faucher says.
Zandi expects a debt-wary Congress to approve only about a third of Trump’s proposed cuts. Still, he says, that would swell the deficit and increase interest rates, curbing borrowing and economic activity.
Trump is likely to make good on his pledge to declare China a currency manipulator because of its efforts to push down the value of the yuan (which has bolstered its exports at the expense of U,S. shipments to China), Zandi says. Trump has threatened tariffs of 45% on Chinese imports and 35% on Mexican products.
More likely, Zandi says, are more modest tariffs and tougher inspection and other standards that impede imports, raising prices for U.S. consumers. The strategy would increase the risk of retaliation by affected countries, potentially crimping U.S. exports.
Trump has said his aim is to coax manufacturers that have moved jobs abroad to return to the USA and discourage offshoring by U.S. manufacturers. Zandi says such a scenario is unlikely because of uncertainty over whether the trade barriers will be permanent. Faucher says offshoring may be slowed somewhat, but the tariffs are unlikely to outweigh its other benefits, such as lower overseas wages and taxes.
Proposed trade deals with Pacific Rim and European countries are probably dead, Zandi says.
“The bipartisan consensus for open trade has broken down,” Faucher says.
Trump wants to deport millions of undocumented immigrants and build a wall along the Mexican border. Zandi predicts about 3 million of the 11 million undocumented immigrants will be forced to leave. Undocumented workers make up about 5% of the labor force, and the departure of some would make it tougher for employers to find employees in a tightening labor market, Zandi says. Faucher notes there would be fewer documented foreign workers under Trump’s plan to restrict immigration. Many jobs would go unfilled, curtailing economic output.
Though Trump’s goal is to open more jobs to Americans, immigrants largely take positions Americans reject, Zandi says. The tighter labor market could push up wages for U.S. workers, but it would further hammer corporate profit margins.
Trump recently unveiled a $1 trillion infrastructure plan that, according to his advisers Peter Navarro and
Trump has said such an initiative would create 13 million jobs. Each dollar invested in infrastructure increases gross domestic product by $1.23, Moody’s says. Some economists question whether the cost of the tax credits will be covered by brisker economic activity.
Copyright 2016 KING