Donald Trump Economic Policy – Part 2

This is Part Two of the Donald Trump presidential platform.  If you’ve missed out on part one, which was about his tax policies, check it out here.  Part two will take a broader look at the Donald Trump economic policy.  Here I’ll look at what he’s proposing as far as trade and regulation, and then tie in the revenue changes and what I think might be some issues facing him – political or otherwise.

As a brief overview, Trump has some interesting ideas for healthcare and immigration (the wall withstanding).  My own personal belief, his healthcare solution may actually be quite viable.  His trade relations are rather protectionist, which is antagonistic to economic theory and American history.  Furthermore, per his protectionist beliefs, it seems converse to his constant claims to want to engage in more free market practices.

So, let’s take a look at the Donald Trump economic policy.

Donald Trump Trade with China

It’s impossible to ignore Trump’s views on China.  They creep into nearly every speech where he mentions the word ‘trade’.  Stated plainly, he’s not a fan.  From military grandstanding, to verbal attacks, Trump is willing to use every tool in the bag to try and “level the playing field” for America.

Starting with the military threats, Trump wants to make a show of force by establishing strongholds in the East and South China Seas.  For those who haven’t followed it, the South China Sea has quietly become one of the most militarized zones in the world.  In particular is one special area, one little section of four island chains that China, Indonesia, Malaysia, Vietnam, and the Philippines all claim as their ‘economic zone’; mainly because these four island chains have copious amounts of shale, oil, and fishing resources.  China has gone so far to literally make new land bridges connecting to them to say that their shore extends farther than it does – this goes against maritime laws for international waters.  Trump intends to station more of our military to try and quiet down the noise and show the Asian countries that America means business.  I’m not entirely convinced because a show of force hasn’t always worked with China and, as common game theory states, you need to be able to make a credible threat to be taken seriously.  I imagine everyone in the world knows that America and China aren’t about to wage war anytime soon.

Trump also has qualms with China’s lax pollution laws as well as their subsidy violations.  The WTO requires fairness when it comes to trade with ascended members and China openly subsidizes their industries.  In some cases, they are the industry through the use of shell companies.  What this boils down to is that China encourages foreign companies to set up manufacturing because they don’t need to be worried about pollution, and then China ships their own manufacturing over to the U.S. at rock-bottom prices due to subsidized factory costs.  As far as retail stores go over here, there is no incentive to buy from American suppliers because the Chinese good is so much cheaper.  In addition, Trump also calls China a currency manipulator for their deliberate goal to devalue their currency so countries import more goods.  Every country with a central bank is a currency manipulator.  The difference is that China doesn’t care if they destroy their working class through high prices because they are an export nation and…well…. they’re Communist.  In fact, when we had our Great Recession and began Quantitative Easing we intentionally devalued our own currency, China is the one who bought a great deal of our bonds.  Even still, they are one of the primary reasons we are able to have deficit spending.

Mr. Trump also wants China to uphold international (read Anglo-European) laws regarding intellectual property.  China has long been known as a country that is OK with cybercrime.  Further, they require a proprietary transfer of knowledge for any country that sets up manufacturing in China.  This was most seen in the case of high speed rails with Siemens.  Siemens was awarded a large contract to come in and manufacture the high speed rails of China, in conjunction with their manufacturing district.  They did so with China South Car (CSR).  After completing the rails that would be integral in the shuttling of people for the Olympics, a new contract came up.  Siemens received a portion of it; however, CSR received most of it.  Plus, guess who is Siemens largest competitor in developing infrastructure countries like Romania and Poland?  China South Car.  Siemens gave them the technology and are now losing international market share because of it.  That is Trump’s gripe with the knowledge transfer.  Trump just wants it to stop.  However, Siemens, and any other country who goes into China, knows this happens.  They’ve already made the decision that it’s worth it.  Who is Trump to stop a company from dealing with China on terms that they mutually agreed upon?

Trump on Energy

The Donald Trump economic policy on energy is “DRILL, BABY DRILL!”  Trump intends to defund all U.N. global warming initiatives and rescind the Paris Climate Agreement that seeks to limit global warming to two degrees Celsius total (35 degrees Fahrenheit), by limiting Carbon emissions.  He seeks to get the Keystone Pipeline established, as well as open up the Outer Continental Shelf for natural gas and oil drilling; he also intends to repeal some of the Alaskan protection mandates by allowing more drilling there as well.  Not stopping at oil, Trump wants to repeal many of the EPA Green Energy initiatives to allow more coal mining and burning.

The issue here, obviously, is pollution and global warming.  To avoid the diatribe, I’m going to avoid discussing the global warming aspect.  However, Cash Flow Celt firmly stands with the global warming community.  Furthermore, Cash Flow Celt also feels we should do our part to reduce our carbon emissions.  Anyways, as for the pollution aspect.  Much of the reason we have reduced our coal burning is because of the terrible consequences it reaps on the environment.  Not only do the smoke stacks emit terrible Carbon fumes that promote smog and acid rain, but the process of procuring the coal has permanently disfigured the mountainous regions of Kentucky and Tennessee.  As for the Keystone Pipeline, this was going to be a 1,200-mile-long expansion of the existing pipe structures to create the shortest route possible from Alberta, Canada down to the Steele City junction which is the last stop before it hits the Texas refineries.  This pipeline was designed to cut straight through the Sandhills of Nebraska (a National natural landmark) and go right through one of the largest fresh water aquifers in the world that supplies water to eight different states; this is ignoring three major rivers that the pipeline would traverse.  The Obama administration, in my opinion, rightly vetoed the pipeline.  An oil spill in any of these areas could permanently damage the environment, and an oil spill in the Sandhills, which houses a large portion of the aquifer, could cut down the water needed for two million people and $20Billion in agriculture revenue.

Trump on Healthcare

Trump’s healthcare plan is probably the most compelling argument for serious reform in his economic plan.  The rest are more or less add-ons or subtractions from existing policy.  In his plan, he wishes to repeal the insurance mandate integral to the Affordable Care Act (ACA), but in conjunction, he wishes to allow insurance companies to sell across state lines – something not available in the current form of the ACA.  These two actions should offset each other to some degree as the mandate repeal will lower insurance participation; however, the ability to sell across state lines should reduce the price of insurance which should increase insurance participation.  Trump also intends to break down our pharmaceutical borders and allow the import of cheaper, but still safe, prescriptions from other countries.  He also wants to encourage the use of Health Savings Accounts (HSA’s) for young people in high deductible plans.  He wants these HSA’s to act as they currently do, except that they can be willed to heirs and are exempt from the estate tax.  As I noted in my first article, Trump also seeks to make health care premiums tax deductible.  His reasoning?  If a business gets to deduct health care premiums, why can’t the individual?

Let me start with the HSA, because they’re awesome and I wish they were more widely available.  At its core, it’s just an IRA account for your medical expenses.  You pay a lower monthly premium (because of the high deductible), and are expected to contribute to the HSA to cover your deductible.  These differ from a Flexible Spending Account because they roll over from year to year and are still eligible long after you retire!  For 2016, the minimum deductible for a single person was $1,300 and the maximum was $6,550.  As for the maximum contribution to the HSA it was $3,350 in 2016.  To be clear, these plans are designed for young and healthy people; not the elderly, and not those with ongoing, constant problems.  The idea is that when you’re young and contributing every year, you give yourself the means to pay for your health when you get older and begin to use your insurance more often.  I will say, these are also not suitable for a single person making less than about $45,000 or a family (two incomes) making around $70,000 for the household.

Now for the dastardly pharmaceuticals.  We all remember Martin Skhreli, right?  The guy who raised the price of Daraprim, the anti-malarial, from $13.50 to $750 per pill over night?  That wouldn’t happen if we allowed foreign imports on drugs.  Take Albuterol for example – the most common treatment inhaler for Asthma.  Albuterol was re-patented in 2002 and after that the price for the inhaler rose from $15 to upwards of $100 for a single inhaler.  If you need a steroid based inhaler, that will run you about $175.  In Canada, I can buy 9 Albuterol inhalers for $77.  That’s $8.50 per inhaler for the same exact drug.  That’s what Trump is seeking to do by reducing the import barriers on drugs.  The only reason we don’t import from Canada and Germany is because of special interest lobbyists who have ‘persuaded’ politicians that the same exact Canadian drug is unsafe for American consumption.

I also really like the idea of Americans being about to deduct their health insurance premiums.  With the skyrocketing cost of care, and premiums running rampant it’s grossly unfair that companies get tax advantages for paying premiums and consumers don’t; especially considering, most of the time, the employee doesn’t get to select what care they receive or what the premium will be.  For instance, my employer has excellent medical coverage.  They also generously subsidize their employees without family coverage at 100% (to which I am highly grateful).  However, with a family it drops down to an 80/20 split and that will run the family about $400 a month.  For just a husband wife combo bringing in $70,000 and assuming a 15% effective tax rate, that means the family would pay about 8% of their after-tax income in just insurance premiums.  If they were able to deduct that premium it would result in savings of about $60/per month.

Trump’s Healthcare for Veterans

Trump has consistently donated large amounts of money to veteran’s each year.  Say what you will about him, but I think we can all respect his efforts to help veterans.  This portion of his platform is no different.  Trump wants to increase spending on PTSD, brain injuries, and perhaps most importantly the suicide prevention and emotional counseling for veterans.  He wants to increase the incentives companies receive for hiring veterans and embed VA services into existing rural hospitals to reach out to the underserved.  Furthermore, he wants every VA hospital and clinic to have an on-staff OB/GYN to provide support to the growing number of female veterans.  Administratively, he wants to clean house and start anew due to the lack of diligence in our current system.  He also wants an audit system to oversee the finances to ensure that the VA budget goes to treating veterans and not buying ostentatious decorations or ludicrous administrative retreats or relocations.  Further, and perhaps the most brazen of his plan, he wants any hospital or clinic that accepts Medicare to also accept a VA card as proof of insurance so veterans can get service when they need it.

Trump’s plans for veterans sound excellent, and are probably long overdue.  One thing to consider though is the implementation cost.  Integrating the VA acceptance at hospitals and clinics will increase cost and mental health is a terribly expensive and prolonged service.  It’s also an administrative cost because someone will need to oversee that area alone.  The emphasis on getting our servicewomen the proper care they need is also laudable.  The only criticism you can really give his plan for veterans is that it will be really, really expensive to do in four years or even eight.

Trump’s Honorable Mentions

There are two things that are worth bringing up in the Trump immigration policy because I’ve never seen them suggested elsewhere.  The first is on the issue of H-1B visas.  Right now, we pull in many of these visa holders for the technology industry because their wage rates are far lower than an American college kid.  Computer science and programming is fast becoming a popular major across the nation, and yet many kids still cannot find suitable work.  Trump has advocated for increasing the minimum wage levels for the visa holders to make them more in line with the prevailing American wage for the same job.  What this will do is take finances out of the picture and allow American kids to compete more equally on merit and ability to do the job.  By doing so, it should reduce the number of visa holders coming over.

The second thing he mentioned was the elimination of the J-1 Visa for foreign youth.  This program was created after WW2 to promote cultural diplomacy.  However, it has become a way to import temporary, low wage jobs – much like the H-1A and 1B visas.  Rather than the J-1 program, he wants to keep the same sponsorship idea and instead allow inner city youth to be afforded the opportunity.  That’s all the detail he provides, so it’s hard to say that we won’t just use inner city youth for cheap labor; however, there are some excellent sponsors on the list.  Sponsors like the Smithsonian and the Library of Congress.  Currently, the J-1 program allows around 90,000 kids a year to get a temporary work visa.  Trump feels those 90,000 experiences would be better served for American kids.

Conclusion

The Donald Trump economic policy is a bit sporadic.  In any way you look at it though, it’s easy to see how it directly conflicts with his goal of cutting $9.5trillion in taxes over 10 years.  There is simply no way to even do half of what he wants with those sort of large scale cuts.  His plan, he says, will spur growth and thus the tax rate reductions will be offset by a larger tax base; however, there isn’t a single think tank, Liberal or Conservative, that has found a way to model that.

Trump also takes protectionist ideas like increasing tariffs on countries if they don’t “play ball” and subsidizing the creation of manufacturing jobs.  America has done these before and unsurprisingly it upsets our trading partners.  They in turn increase tariffs on us and it reduces a lot of what the original goal was.  Trump has made a lot of his economic claims with a stand-off attitude towards our allies and trading partners.  America first may make get you votes, but it does nothing to keep your friends.  Yet friends are the ones who buy your American made goods.

His energy reform is also short-sighted.  He’s willing to bring back jobs, like coal mining and burning, that we eliminated for the safety and health of our citizens.  Plus, he is willing to sacrifice a potential environmental disaster by allowing more drilling in Alaska as well the outer continental shelf.  The Deepwater Horizon spill – more commonly known as BP’s Gulf of Mexico boondoggle – was an oil rig in the outer shelf.  It decimated the Florida gulf for years after it occurred.  However, that metric only measured money.  We still have no idea what it did to the ecology and flora/fauna of the Gulf.

For now, Trump’s plan is a mish-mash of countervailing ideas and political grand standing.  It talks big ideas, but doesn’t supply a budget to go with it.  If anything, his budget is more deficit spending to fund tax reductions; however, he vows to reduce deficit spending to better negotiate with China.  It just doesn’t make sense and left me feeling vexed after reading.  He claims to be free market, but is willing to implement protectionist bills to promote domestic manufacturing.  That said, his ideas on healthcare are some of the best I’ve heard for a private healthcare system and are worth a second and third glance.  He also has a history of helping veterans and still stands strong there as well.  Trump has provided the skin of his plan, but no bones or organs to go with it.  Thus, Cash Flow Celt rules the Donald Trump economic policy incomplete and implausible at the current junction.

 

Readers, do you agree with my review?  Have any questions or qualms?  Don’t hesitate to comment below!  If you enjoyed the read, go ahead and share it on Facebook and make sure you’ve ‘liked Cash Flow Celt on Facebook.  Keep in mind though, this is not an endorsement for or against Donald Trump.  This was merely a look at his economic policy.  There is much more to selecting a president than just their economic and tax views.  Pleasure conduct your due diligence before placing a vote.  Be sure to check back soon to read the Cash Flow Celt review on Hillary Clinton!

Cash Flow Celt

I'm just a local business and finance nerd looking to help people get educated about small business, marketing, and personal finance! I write about anything and everything that I can tie into those themes. I'm also Central Florida's only Kilted Realtor, so I write about Real Estate too! Check out my About Me page to see the origins of Cash Flow Celt.

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