For many today, President Trump’s economic policies seem chaotic. He imposes tariffs that look to be starting a trade war. And he is trying to drastically cut the functions of the federal government which means terminating perhaps millions of mostly skilled workers. The resulting decrease in demand from the large cuts in government spending could do as much to reduce economic activity as they do to reduce prices.
Trump’s defense is that his tariff policy has two desired outcomes. One is that the rest of the world “reciprocates” and charges the same tariff we charge. And second that the manufacturing of key products should occur in the US. Especially goods that effect national security.
Trump would further answer that any decrease in demand that did lead to lower output rather than lowerprice, would be offset by higher demand from lowertaxes and much lower energy prices.
In the past, Trump’s policy worked. Recall prior to COVID, unemployment was at record lows especially for minority groups, inflation was about 1.5% and the economy was set for rapid growth. He says that we had the greatest economy ever.
This time Trump’s policies will work too. They work because his policies follow the correct principles. Looking back at the economic history of the US. certain principles emerge that were the basis for the extremely rapid growth and prosperity.
The US went from the birth of a nation to the largest most prosperous economy in the world, in about 150 years. Other economies were hundreds and some thousands of years older.Yet our young economy yielded the highest standard of living.
I believe there were four basic principles that led to this rapid growth.
First, we encouraged individual freedom. As long as an individual did not infringe upon the basic rights ofanother, they could pretty much do what they wanted.
Second, we encouraged individual responsibility. As long as a citizen was mentally and physically able to take care of themselves, everyone did. Of course,there was a strong family presence that almost always helped when needed.
Thirdly, we had low rates of taxation. That meant whatever an individual earned, they new most of it would end up in their pocket. This, of course, provided tremendous incentive to achieve.
And fourthly we had a limited role of government. Aside from providing the relatively few public goods, the government pretty mush stayed out of the way. Of course, government provided a legal system, defense of the country and leadership for arepresentative Democracy.
Those four principles couples with the private property and the good fortune to have abundant resources, gotthe US to the highest standard of living in the world in a very short time.
Trump’s current policies are following those principles. Internationally, he wants to set an environment where US manufacturers are free to sell their products. They aren’t free markets now because foreign governmentsplace conditions that severely limit US companys’access.
For freedom-oriented markets to occur internationally, there should be no tariffs on any products in any country. The reality is that all governments feel there should be at least some tariff. The standard answer was 2 ½%. The US adopted that. The problem was almost no other country did.
Instead, China placed 25% tariffs on US autos. The EU placed a 10% tariff and then added some version of their value added tax. India put a 100% tariff on motorcycles. That caused Harley Davidson to build a plant in India.
Regardless of the short-term pain and the short-termbruising of some longtime allies, the outcomes will betariff equality and more market freedom for American companies.
The Federal Government has a $36 trillion public debt which means we must stop deficit spending immediately. Since the basic economic principles say that we should keep taxes low and we have a limited role for government, the only solution to attaining abalanced budget is to drastically reduce government spending.
Trump has a team that is going into every government agency and simply modernizing it. That will allow the government to operate more efficiently with less than half of the current workforce.
He will also free the energy market to respond to changing market conditions. This will lead to plentiful reasonably priced energy.
Despite resistance, mostly by people who have benefited from government gross inefficiency, President Trump’s economic policies will make American great again. They will because those policies follow the basic economic principles that have always made America great.