Trump has talked a big game on economic policy, and now he has the chance to follow through. He has proposed a number of sweeping changes, so we’ll look at some of the biggest suggestions to see what they can accomplish.
Manufacturing
Many speculate that Trump’s policies on trade are what won him pivotal swing states in the Midwest. He has made it very clear that he wants to bring manufacturing back into the U.S., and he’ll do it by renegotiation international agreements and protecting American interests with tariffs.
His stated goals are to restore approximately 5 million manufacturing jobs. Ultimately, this number is optimistic, especially considering just how much of the negotiations and final arbitrations won’t be in his hands.
That said, a minimalist outlook on the changes he is pushing will still bring job growth in this sector. The most modest projections show job growth in the tens of thousands, but comprehensive trade reform could easily push those numbers into the ballpark of 700,000.
Small Business
Small business has recovered somewhat since the big collapse of the last decade, but growth is far from where it could be. Two current policies have inhibited this sector: Obamacare and tax structure. Last week I went over why Obamacare is more likely to be changed than repealed, and none of those changes will bring enough help to small businesses.
That leads us to tax structure. One of the biggest issues with leftist tax structure is that it treats small businesses as rich individuals. When these companies are independently owned, they are taxed on revenues, not necessarily profits. In simple terms, these businesses are paying excessive tax burdens that are stifling expansion.
Trump’s vision for tax reform benefits this demographic the most. Currently, small businesses make up 45 percent of the nonfarm GDP and pay roughly 11 percent of all tax revenue in the U.S. This amounts to roughly $360 billion a year. The proposed reform could cut those tax expenses by as much as half, putting $180 billion back in the pockets of small business.
Even if the tax burden only drops by 15 percent, the sector still has an additional $54 billion in liquid revenue to invest. Projections suggest that this can culminate in overall small business growth of somewhere between 5 and 20 percent in addition to smaller growth expectations. Ultimately, this change alone can increase the GDP by a full nine points.
Stock Exchange
The S&P 500 and other major exchanges have already defied doomsayer predictions since the election. Long-term changes will depend largely on international trade agreements. Trump’s goals are to get China to fall more in line with general international regulation. While those negotiations happen, he wants to renegotiate TPP, and the EU is facing its greatest uncertainty.
Historically, when international trade becomes suspect, the world invests American. You can reasonably expect the USD to gain on foreign currencies, and the S&P 500 will continue to grow. Most economists have abandoned their more radical models, and a safe prediction shows S&P 500 and Dow growth to average around three percent growth per year across the presidency.
Of course there will be ups and downs along the way, and fed hikes will probably contribute to that, but the overall outlook is modestly promising.
Energy
American oil production is going to be protected. Without a slew of additional government regulations, fracking and other advanced techniques will be able to maintain pressure on foreign oil prices. You can expect oil to rise with or just above inflation levels for the duration of the Trump presidency. This is good news for transportation and production, and it can help reinforce the push for more American manufacturing.
The double edged sword is that the U.S. oil industry won’t be enjoying much of the growth that other sectors are expecting. Still, the availability of domestic resources will prevent any major decline.
Government Spending
So far, there is no sign that the new administration will push to restructure military spending or general investments in research and other large fields. The only projected change so far comes in infrastructure spending, and Trump wants to go big. While he’s unlikely to get the $2 trillion a year he thinks is necessary, but you can expect an increase in infrastructure spending to measure in the hundreds of billions.
While this is obviously good for maintaining safety, it also puts a lot of money back into the economy. In general, a good 10 percent of money spent on infrastructure will have immediate economic returns, with higher numbers possible.
The short story is simple. Everyone who is paying attention thinks that economic growth will at least double by the end of the next four-year term, and it could conceivably go higher.
Regards,
Ethan Warrick
Editor
Wealth Authority
