OPINION:
President-elect Donald Trump returns with an extraordinary opportunity in American economic history. He has a clear mandate to move the country in a conservative direction and the opportunity to accelerate growth.
Over the last eight years, gross domestic product has increased 2.5% annually — better than the 1.9% pace during the Bush-Obama years but short of the 3.2% achieved in the Reagan-Clinton era.
This prosperity was accomplished through Keynesian stimulus — the 2017 Republican tax overhaul and the 2021 Infrastructure Investment and Jobs Act — supply-side industrial policies — booming manufacturing investment instigated by the CHIPS and Science Act and Inflation Reduction Act — and immigration.
Still, the federal deficit has grown from 2.9% of GDP in 2016 to 7%.
The decade prior to COVID-19, the 10-year Treasury rate averaged 2%, whereas with competition between artificial intelligence investments and big federal deficits for funds, a 3.5% or 4% rate is likely.
With $30 trillion in debt held by the public, a 2 percentage-point increase in the rate paid on outstanding debt would boost the annual deficit by 2% of GDP.
Mr. Trump ran on a platform of tariffs, tax cuts, mass deportations, deregulation and transactional foreign policy.
Those could work in appropriate measure, but he will have to back down on some promises to join the pantheon of truly successful presidents.
Regulatory reform and increased petroleum production require new administration agency rules and inevitable court battles. His first term accomplished some success, but it was limited.
In renewing the federal tax overhaul, Republicans could tinker with tax rates, deductions and credits to benefit tip workers and older Americans. If they overreach, even higher interest rates, more inflation and perhaps a bond-market rebellion will result.
A 60% tariff on Chinese goods, phased in over several years, applied to Chinese components embodied in third-country imports and with rebates for U.S. exporters using Chinese materials, could compensate for the disadvantages imposed on U.S. manufacturers by Beijing’s subsidies, protection and an undervalued yuan.
China’s rising dominance in global manufacturing — for example, in solar panels and electric vehicles — was also accomplished by ensuring steady domestic demand for targeted industries through tax incentives and regulations that steered domestic purchases.
Tariffs alone are cheaper than President Biden’s industrial subsidies, but the former won’t provide a steady market in an economy with business cycles that target EV sales and green power.
Mr. Trump could ease but not eliminate some regulations and end the “woke” excesses in Mr. Biden’s policies — forcing chipmakers to provide child care and gender- and race-based steering of training opportunities — to save money.
Also, management quality at major beneficiaries of federal dollars, such as Boeing, Intel and General Motors, is often hardly stellar — perhaps an assignment for presidential adviser Elon Musk.
A 20% tariff on our trading partners outside China would be met with retaliation and limit markets for America’s highly innovative semiconductors, AI software and just about everything else we export.
The Europeans and others might be more receptive to creating a common front against Chinese mercantilism to avoid new U.S. tariffs.
The recent GDP growth boom was not created by accelerating productivity. That advanced at a 1.9% annual pace during the Trump-Biden years — about the same as during the Bush-Obama years.
In 2024, the natural increase in the U.S. workforce enabled by population growth and regular immigration should have permitted employment growth of only about 80,000 a month; for the year ending in the third quarter, the pace was 195,000 per month.
With the economy fully recovered in 2023 and at full employment, illegal immigrants finding jobs permitted accelerated growth to continue.
If Mr. Trump shuts down immigration and deports millions of illegal migrants, who’s going to make the products for the demand higher tariffs and tax cuts are supposed to enable?
Investment in AI equipment and software is estimated to rise from $185 billion last year to about $900 billion in 2027 and have the potential to increase labor productivity by 1 percentage point a year or more and raise GDP growth 3.5% or 4%.
Much dynamism in American high-tech is driven by immigrant scientists, engineers and entrepreneurs who come to study here and then stay in America seeking opportunity — the leaders of Google, Tesla and Nvidia migrated from India, South Africa and Taiwan.
Mass deportations would send a powerful signal to the best and brightest to go somewhere other than America.
Six-figure opportunities for young workers in high-tech and traditional trades are waiting if we can get high school graduates into training and apprenticeship programs. But we need to provide them with the same resources — housing, transportation, student loans, etc. — that we routinely afford college students.
Spending at universities is running out of control, often with federal money and disappointing results, and funds to promote apprenticeships should come from shrinking their resources and enrollments.
It’s all there for the new Trump administration to grasp.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
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