The Trump business model
The American consumer comprises 68% of the U.S. GDP.
Although President Trump’s approach to “populist” domestic production centers and “Made in America” employment growth has generated intense enthusiasm among America’s rank and file, his personal pressure over conglomerate business giants may have unintended consequences.
While two terms of the Obama administration management have witnessed severe industrial employment shrinkage, the nation’s low-cost consumption has been the prime beneficiary. While it has impacted the greatest reduced cost of energy derivatives, steel, copper and imported commodities in general, the American consumer, comprising 68% of the U.S.’s world-leading gross domestic product, has benefitted substantially.
Although the cost of labor has remained relatively stable in the past eight years, the number of potential employees working part- or full-time also has slowed. Now the big question to be answered is whether the upward direction of interest, costs of domestic and imported goods, and their possible lesser availability will redound positively with an American population approaching 350 million by mid-century.
While the benefits from lower corporate and middle-class taxes may prove positive enough, the higher monthly costs of family consumer expenditures could put on an additional squeeze.
While reduced regulations likely will engender record “small business” development and growth, import/export balances may prove counterproductive; as America’s huge business/professional balance sheets absorb the many “changes.” These are due to manifest themselves aggressively, at least in President Trump’s first two years. The big question yet to be answered is whether the new bottom-line results will be welcomed by America’s population as a whole.
When approaching America’s near $20 trillion future gross domestic product and a slightly higher Treasury debt at best, much of the Trump economic victory “trumpet” will depend on how this contra-cyclical number of changes will be accepted by the expectant U.S. population.
It should be remembered that President Ronald Reagan faced a similar set of contradictory circumstances in which the first two years of continued high inflation and the trickledown on his total reshaping of the U.S. economy as a whole, still was in question.
While Trump’s bevy of obstacles are of a different complexity, the light at the end of the tunnel must become increasingly apparent by the 2018 midterm elections to maintain the support of the voting public by then.
U.S. foreign policy change
With the imposition of the most confrontational foreign policy since the Nixon administration, President Trump let it be known early on that he will no longer cater to the “sensitivities” of foreign nations to buy “peace at any price.”
This “America First” confrontation arose before Trump’s inauguration when he received a congratulatory phone call from Taiwan’s President Tsai Ing-wen.
This seemed to reverse the Nixon/Carter policy of yielding to China’s 1979 demand of accepting its eventual sovereignty over Taiwan. It ended the appeasement that started with Saudi Arabia’s oil embargo in 1974, followed by a long line of deal making with antagonistic nations for the purpose of peace at any price — if it maintained international tranquility or consummated in the purchase of cheap commodities from foreign nations to strengthen multi-billion-dollar conglomerates and encourage cheap imports.
This attitude extended throughout the Bush family and Clinton presidencies. It resulted in cheap prices for the consumer sector, which represents 68% of the U.S. gross domestic product, but also abetted the decline of U.S. manufacturing and the loss of millions of jobs.
The next few months, during and after President Trump’s first 100 days, will determine whether the 45th president will make good on “America First” by cracking down on the North American Free Trade Authority and the many global trade deals tilted in favor of foreign nations party to these deals. This encouraged cheap imports, but also record trade deficits.
If President Trump solidifies the positions enumerated during the fiery political campaign of last year, there is a strong possibility that America’s imports and exports will decline. It also will likely lead to a return of trillions of U.S. corporate dollars to America, encouraged by a “10% or less” tariff and a rebound in U.S. manufacturing employment and new factory construction.
With a strong Congressional majority supporting Trump’s “Pax Americana,” such massive changes in a short timeframe will become a realistic possibility.
But like all drastic changes looking good in their projected manifestations, their eventual outcome, good, bad or both, only will become decisive once their actual impositions are put into place.
Can Trump control U.S. debt?
With the overloaded initiatives confronting President Trump and the Republican Congressional majorities, the $20 trillion out-of-control U.S. Treasury debt must take precedence first and foremost.
What appears worrisome at this point is how President Trump and a cooperative Congress can justify such monetary reductions as lower total taxes, higher import and export prices due to a more rational foreign trade policy and the revision of Obamacare, plus increases in Social Security, unemployment support payments and a sizable buildup in the military, for starters.
Yes, $10 trillion of the current debt size was spent in the last eight years, but most of the ongoing runaway expenditures got considerably out of hand in the last 27 years. This was a time period in which the U.S. attempted to take over responsibility as the only world superpower while trying to satisfy a fast-growing population. This was occurring at the same time as greatly inflated overall regulatory controls, especially the most recent Environmental Protection Agency and the Dodd-Frank legislation.
While the established international credit agencies have as yet not severely downgraded the value of the American dollar and its world-leading status, President Trump could face such action if the global credit analysts finally catch up with a U.S. annual budget approach. This would attempt to balance its spending objectives with a realistic income stream.
While the U.S. Federal Reserve Board has signaled multiple interest rate increases due to the Fed’s commitment to play realistic catchup for the first time since 2008, President Trump’s extremely ambitious spend-and-collect enunciated plans have their work cut out for them.
Since such a professional and realistic budget plan is long overdue, President Trump and Congress will face the inextricable combination of fulfilling objectives that look unmanageable under present circumstances. Trump’s ability to untie this “Gordian knot,” made ever tighter in the last quarter century, will go a long way toward a presidential success, if it comes even close to accomplishment.
The remake of America first and foremost will depend on such accomplishment, if successful in the next four years.