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President-Elect Trump, who is famous for disdaining and mistrusting the press, is speaking directly to the American people through his transition team’s YouTube channel. His first video explains his first 100 days priorities and makes it clear that trade and job issues will be on his agenda from his very first day in office. On day one, he says, he will withdraw America’s tentative participation in the Trans-Pacific Partnership (the trade deal has yet to be ratified by Congress). He again emphasized that he will work to “bring back” heartland jobs, particularly in manufacturing and energy, though tariffs on business that move production or otherwise outsource jobs, and by eliminating environmental regulations, which he says have driven American businesses overseas.
What has many economists concerned is that the President-Elect’s jobs plan makes no reference to labour and energy costs, or the kind of organic growth we have seen in the American job market. The Bureau of Labour Statistics has reported steady month after month jobs growth in tech, health care and services and just as steady a decline in manufacturing. A jobs plan predicated on the complete transformation of a globalized economy must necessarily be complex and intensive (and face so many challenges and unexpected outcomes that it’s unlikely to work out as planned). The President-Elect’s plan focuses on reducing the tax and safety burden on businesses because he believes that these are the primary obstacles to reinvigorating American manufacturing and energy. But you can’t just bring back jobs, you have to keep them. So how can tariff and regulatory reform compete with automation, global labour, or OPEC’s role in setting energy prices?
CNBC’s Joe Cramer said that “there are no millions of jobs that can be created” in the energy sector, citing America’s aging infrastructure, the already underway shift from coal to natural gas and the realities of current energy pricing. Although demand for natural gas in China has gone up and down and up again this year, it’s still the case that natural gas, not coal, is the growth market. Demand for coal has dropped within America and globally, a trend that will soon be “irreversible.” The value of American oil, of course, is not set by Americans, but by global demand and by OPEC policy — all the tax cuts and tariff reductions in the world can’t make a product more valuable. The story is similar in manufacturing. Bringing back jobs by penalizing outsourcers won’t make American labour competitive, or its products competitively priced. It also can’t hope to reverse the trend toward automation, which has made both the energy and manufacturing sectors much more efficient and cost-effective.
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President Trump’s infrastructure plan, which drove construction stocks high post-election, has also been called a jobs plan. But Ronald A. Klain, a former assistant to President Obama who oversaw the American Recovery and Renewal Act from 2009-2011, worries that the plan’s focus on tax cuts and credits for businesses are not precise enough to induce a real infrastructure boom.
“Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.”
If the tax cuts are not designed narrowly enough they will not go to new projects, and will therefore not create new jobs. And will these tax cuts create new jobs at all? Economists and policy makers are divided on this — evidence suggests that tax cuts on the wealthy don’t create jobs because of their propensity to save; and corporate taxes don’t seem to work as economic stimulus in high GDP countries, except in combination with other factors, like favourable commodities prices and government investment. That is, corporate tax cuts can have a feel good effect on businesses, but don’t spur job growth without plenty of other reasons for businesses to expand or invest.
We still have very few details of President-Elect Trump’s plans for energy, infrastructure and manufacturing, but from what we’ve learned so far, it seems to a strange combination of Reaganomics and protectionism. The vague, patchwork nature of his plans, a little bit of tax cuts, a lot more punitive tariffs, is simply incoherent, making any kind of economic prediction impossible — at least until we know more. As we piece together Trump’s economic doctrine and likely policies, it’s best to remember that the economy is a complex system of relationships where every policy has as many costs as it does benefits. While protectionism may sound like an ideal way to “bring back jobs” it comes with enormous costs to business and travellers — ultimately a de-globalized world is, for business, a more costly world.