Trump’s Second Term Will Be Tougher Than You Know

Donald Trump is now only the second U.S. President in history to be elected to two non-consecutive terms. That’s a big deal! And he has big plans that will reshape the American economy for a generation. Big plans aren’t without cost, though – here’s how we’ll be paying for it…

Note: I understand this column walks the very fine line between economics and politics. Even so, I think it’s important to understand what we can expect once President-Elect Trump begins his second term. 

On Tuesday, Donald Trump became only the second U.S. President in history to be elected to two terms non-consecutively (Grover Cleveland was the first). Millions of Americans were elated at his victory, and many Americans were upset about Trump’s victory.

Now, of course, once Trump takes office, he’ll take steps to implement the policies that he campaigned on (and Trump is better about actually doing that than any establishment politician that I’ve ever seen), so, we can expect changes to happen.

But not quickly. The first thing to realize is that, while Trump has a track record of being more likely to try to implement his campaign promises, the U.S. government isn’t a one man show.

So, what’s the problem with that?

The likely problem is simple to explain, not so simple to overcome. Connor O’Keefe, writing for the Mises Institute, puts it this way:

For one, there is clearly an effort by some neoconservatives and establishment Republicans to again co-opt Trump’s presidency.

What does that mean?

Simply this: Even though Republicans took both the House and Senate with Trump re-taking the White House, centrist-leaning and hawkish Republicans may actively oppose some of Trump’s policies which would make it more difficult for him to implement those policies.

In other words, just because Trump won the Presidency and there was a red wave, that doesn’t mean that they’re all on the same page.  How often do politicians actually do what their constituents want?

That is, generally speaking, the way of politics, after all!

1. Tell voters what they want to get the votes.
2. Get elected.
3. Do what lobbyists and special interests tell you – and collect the payoffs.
4. Start over – only this time, blame your failure to deliver on those promises on the other party.

You’d be surprised how often this works. The humorous parody of a politician, Gil Fullbright, who just says he just wants your vote so he can gain power to work for special interest groups (which have a lot more money than us voters do).

Even if Trump is able to completely enact his campaign promises…

There’s another challenge

And that problem has to do with the issues that Trump was able to advocate for during the election. Again, from O’Keefe:

With all that said, however, it’s important to keep perspective and not get too carried away by all the focus on this one victory. The unfortunate fact is that some of the most significant issues facing the American people were not featured at all in this election cycle.

That’s right, some of the most important things that we need fixed in our country may not even be addressed because they didn’t come up as important issues during the election.

And, as O’Keefe said, “The most frustrating example is all the damage caused by the Federal Reserve.”

The Fed didn’t come up much during the election. After all, the sad truth is that most Americans don’t understand the Federal Reserve, how it works or what it does to our purchasing power.

They don’t understand it at all. 

Trump has threatened to terminate Fed Reserve Chairman Jerome Powell on several occasions. Just yesterday, Powell fired back:

…Powell added that it is not permitted under the law for presidents to fire or demote the Fed chair.

When asked if he’d step down if Trump requested it, Powell responded with a one-word answer: “No.”

Interesting!

Should Trump decide that Powell isn’t the best man for the job, will he have the energy and political capital to open a new front in the war on bureaucracy?

I’m not sure. And ot dealing with the Fed and its fiat money supply means that we won’t be getting to the heart of the problem that is causing loss of purchasing power through inflation, consolidation of power and control in a central government, and a consistent “transfer of wealth from the poor and middle class to the politically-connected rich.”

Friends, I hate this. (I guess that means I’m not rich OR politically-connected enough.)

Could Trump deal with the Fed anyway?

Yes, he could. He could choose to make that a central issue in his second administration.. If he ends the Fed and is able to take our country off of a fiat monetary system, the long-term benefits of that for our country would be HUGE. But it would also be a catastrophe for “the politically-connected rich,” who’d certainly fight tooth and nail.

Considering that Trump is likely to have many battles during his second term in the White House, I’d be shocked if he’s able to make real progress on such a big task in just four years.

In fact, Trump and his advisors may decide that they’re better off with a friendly Fed. Here’s why…

Trump’s tariffs will raise prices

So, infighting and not being able to focus on huge underlying issues in our current economic and political system are big barriers to fixing our economic system quickly.

There’s also the affect of some of Trump’s economic policies, too.

Now, I’m not suggesting that Trump isn’t planning on doing what he thinks is in the best interest of the country. I think that he is planning on doing what he believes will help.

But like a bad cut or burn that is healing, there will be lingering (and, sometimes, stabbing) pain as our economy moves from its downward trend from Bidennomics to an upward trend again.

Kate Gibson with CBS News writes,

Now, Trump has said he plans to impose a 60% tax on goods from China and a 10% to 20% levy on all of the $3 trillion in foreign goods the U.S. imports annually. Such sweeping tariffs would reignite inflation, as they would mostly be paid by U.S. consumers, Treasury Secretary Janet Yellen has warned, offering a general view widely shared by other economists on both sides of the political aisle.

Now, Janet Yellen and I may not agree on many things, but she is right about this.

Tariffs cause prices to rise, and we will pay more for many of the things we buy because they’re imported.

How much more? Quite a lot…

Americans stand to lose between $46 billion and $78 billion in spending power each year on products including apparel, toys, furniture, household appliances, footwear and travel goods due to the new tariffs…

Add to that list electronics (computers, smartphones and TVs), batteries, solar panels, automotive parts, lightbulbs… All these will cost 60% more.

And you and I will pay the price! The nonpartisan Budget Lab at Yale University tells us:

A consistent theoretical and empirical finding in economics is that domestic consumers and domestic firms bear the burden of a tariff, not the foreign country.

Why? Trump ran on a campaign of lowering the cost of living, didn’t he?

Yes – you have to understand this is a trade-off. Steep tariffs on imported goods will make domestic manufacturing more viable. Over the long term, these tariffs will result in a more diverse, vibrant and productive economy here in the U.S. But this isn’t a change that happens fast! It takes 1 ½ – 4 years to complete a new factory from blueprints to ribbon-cutting.

Meanwhile we’ll all pay higher prices.