A Post Election Analysis

Trump spoke wildly during the campaign.  He promised to build concrete walls against immigrants and tariff walls against imports.  He threatened to deport millions.  He proposed sweeping tax reforms and plans to spend billions on infrastructure.  In a strange combination of isolationism and belligerence, he promised the Pentagon more.  It was indeed a wild ride — scary for many.  But now he has won the election.  If he is half the practical businessman he claims, he must know that the real world will constrain any plans and force him to compromise.

Recent pronouncements revel that he understands this.  He has acknowledged that he leads a deeply divided nation and that he did not get a clear majority of the popular vote.  He must know that the Democrats, though a minority in both houses of Congress, still have enough votes in the Senate to block legislation with a filibuster.  And he ought to know that many House and Senate Republicans differ with several of his positions, House Speaker Paul Ryan prominent among them.  Administration goals, recently listed by his transition team, already acknowledge this reality.  They use much less strident language than the campaign did.  This list also provides an opportunity to get a sense of what might actually happen as administration aims interact with Washington’s political landscape.

Tax reform, through having failed for years, now has a reasonably high probability of seeing the light of day.  Especially in the corporate area, Trump’s proposals resemble much bipartisan legislation proposed over the years from the Obama administration’s Bowles-Simpson Commission to measures put forward by House Speaker Ryan not too long ago.  Like many other proposals, the Trump team has expressed a desire to reduce the statutory corporate tax rate, in this case to 15 percent from its present level of 35 percent, and recoup the lost revenue by eliminating the many concessions and loopholes presently in the law.  Trump argues, as have many others, that such reform would promote growth by making the code simpler, more equitable, and less likely to distort economic decisions.  It would also encourage more business to move to this country and stay here by keeping U.S. tax burdens as low as they are abroad.  Since so many on both sides of the isle have agreed with reforms along these lines, the proposals will likely get a warm reception in Congress.  Disputes will center on which loopholes will close and how thoroughly, a matter on which the Trump team remains coy.

Though plans to improve the nation’s infrastructure have received widespread support from all parties and quarters in Washington, progress in this area will likely face more severe difficulties.  Trump is looking to spend $550 billion. This figure differs little from many other proposals.  It is considerably less than the nearly $1.0 trillion earmarked by the Obama administration when it came into office in 2009, and is not outrageously larger next to the $305 billion agreed upon by Congress last year.  Trump proposals would face resistance, however, because of their proposed method of financing.  They would encourage private ventures by offering tax credits up to 82 percent of the equity put into the project.  Trump’s team has argued that additional revenues from faster growth and job creation would make up for the funds lost to the credits.  Many on the Democratic side and several Republicans in Congress believe that such private incentives are insufficient.  The entire effort might founder on these differences.  It has done so on smaller disputes in the past.

Three of Trump’s most economically meaningful points lie in the regulatory realm, where any administration has considerable freedom of action, certainly more than when seeking new law.  On a general level he plans to have a complete regulatory review, demanding that each agency weigh the economic cost of its rules, particularly in jobs, against their value to health, safety, and the environment.  This is completely in his power, though it is doubtful the government bureaucracy would give him the through review he seeks.  Similarly, most of his energy plans lie in the regulatory area.  He aims to streamline approvals for all energy projects, fossil fuels and alternatives, including offshore drilling and the construction of the Keystone Pipeline.  He plans to limit EPA power under the so-called “waters of the U.S. rule” and what he and others call the war on coal.

Some aspects of his immigration agenda would similarly lie in the regulatory arena.  Thus, the new administration could quickly reverse President Obama’s catch and release procedures and its reluctance to deport criminal aliens.  Trump has already stopped talking about mass deportations and these appear nowhere in his plans.  His regulatory powers should also enable him to accelerate the planned implementation of biometric visa tracking.  Other Trump goals would face more resistance.  Funding for his continuing ambition to build a wall along the Mexican border is prominent among them.  Some of his spokespeople have already begun to walk this position back.  He would need cooperation and in some cases legislation for his plans to change benefits rules for aliens and block funding to sanctuary cities.  On these matters, he would almost surely have to compromise, if he gets anywhere at all.  His stiffest resistance, especially from Democrats in the Senate, would emerge in response to his larger ambition to reform immigration law to make it better serve the country’s economic interests.  If anything along these lines passes, it will do so only with significant compromises.

His last three agenda items will all face uphill battles.  Plans to repeal and replace both the Affordable Care Act and the Dodd-Frank Financial Reform legislation would require the new administration to craft extensive and complex alternatives that by nature would involve tradeoffs and compromises.  Rather than take on such a huge task, the likelihood is that his administration will work together with Congress to correct obvious problems with existing law and perhaps at the margins implement aspects of the Trump team’s favored pro-market approach.  So, too, his plan for military spending would face battles in Congress.  The only thing that suggests he might enjoy a measure of success is that his plans cost less and are less open ended than they might be.  Since Trump is anti-interventionist, he has said nothing about an enlargement of the military, which, of course, is the most expensive option.  Instead, he has talked about modernization to combat cyber warfare and to secure the existing nuclear arsenal as well as make it a more effective as a deterrent.  Despite the relative appeal of such plans, their implementation would require considerable compromise.

Trade matters failed to make the transition team’s list.  This is strange, since Trump talked so much about trade during the campaign.  Though the transition team offers no explanation why it has given the issue such little attention, it is easy to speculate that the new administration simply plans neglect.  Trump must know that his tariff schemes would face impossible resistance in Congress, from Republicans perhaps more than Democrats.  While avoiding a losing battle on tariffs, he also knows that he can effectively kill the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) deals by refusing to endorse or promote them. As for the North American Free Trade Agreement (NAFTA), Trump may still have plans to re-negotiate it, and the Canadians have expressed willingness to do so, but it is clear from this omission that re-negotiation is not an immediate agenda item.

It is a much less radical picture than emerged from campaign posturing and rhetoric.  Trump simply does not have the power to transform the country as thoroughly as some would like.  He knows that he will have to deal.  Since he has spent his entire adult life making deals, it is an environment in which he should feel comfortable.  It is also an environment that should comfort those who fear Trump’s extremes.

 

 

 

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