TRUMP VS CLINTON: THEIR ECONOMIC POLICIES AND WHAT THEY MIGHT MEAN FOR YOU

by Alexander Beard, on Aug 2, 2016 10:06:16 AM


As expected both the 2016 Republican and Democratic National Conventions formally nominated Donald Trump and Hillary Clinton as the respective parties’ presidential candidates.

The USA will go to the polls on Tuesday November 8th to choose the 45th President of the United States. They’ll be choosing between two candidates who actively dislike each other (nothing new there you might add, but this time it’s fairly visceral) in what’s likely to be a bitter contest. Trump and Clinton have radically different views on virtually everything – especially economics.

But one of them will be elected President – and the economic policies of the new ‘leader of the free world’ will have a significant effect on America, its trade with the rest of the world and quite possibly, your savings and investments.

So what are those policies?

It’s hard – especially with Trump – to discern the real economic policies amid the campaigning and the constant rhetoric. You also need to sift through the bias: like the UK’s Brexit debate, much of the commentary on the candidates is presented through the inherently partisan prism of whatever newspaper or magazine you’re reading. But let’s try…

Donald Trump

Employment

Trump has declared that he’ll be the ‘jobs president.’ Looking to ‘bring back American jobs from China, from Mexico, from Japan, from so many places.’

He’s proposed doing this in two ways: the one that’s made the most headlines involves imposing tariffs on foreign goods, such as a 25% tariff on Chinese imports. Trump also wants to negotiate better trade deals.

The minimum wage

Trump has been one of the few Republicans who hasn’t been sceptical about the federal minimum wage – currently set at $7.25 (approximately £5.30) an hour. However, he doesn’t want to increase the minimum wage, arguing that it will make US employees less competitive when compared to foreign counterparts. Trump has floated the idea of two minimum wages – one for teenagers, one for adults with families. Doing this would undoubtedly lift many Americans out of poverty: but his opponents argue that it would be likely to cost jobs in the long term.

Tax

Donald Trump has made several pronouncements on tax – some of them contradictory. In 1990 he was in favour of a one-off tax on the wealthy to pay off the national debt. He’s criticised Obama for not wanting to extend the Bush tax cuts and in his 2011 book, Time to Get Tough, he offered a number of changes, including eliminating estate tax, ending corporate income tax and lowering the tax on capital gains. More recently, he’s proposed a top tax rate of 15%, despite tax experts saying it would add heavily to federal debt.

Who’s going to run the economy?

‘My pals,’ seems to be the short answer if we have President Trump. ‘The Donald’ appears intent on bringing in ‘the best of Wall Street’ to run the US economy, including ‘my friend, Carl Icahn,’ a billionaire hedge fund manager. Trump has also mentioned private equity mogul Henry Kravis and former General Electric CEO Jack Welch as top candidates for the role of Treasury Secretary.

Will Trump repeal ‘Obamacare?’

On the face of it, yes. Trump has called the Affordable Care Act ‘a disaster,’ saying that it will add $350bn to the US deficit between 2016 and 2025. But he’s yet to spell out how he’d replace the Act. He has, however, stated that, ‘you can’t let the people without the money and the resources go without health care.’

Hillary Clinton

As you might expect, Hillary Clinton’s approach to economics is much more mainstream. Her ‘pitch’ to the American people has three key messages: strong growth, fair growth and long term growth.

Jobs and wages

US incomes are no longer rising in line with productivity: as many commentators have noted, this central tenet of ‘the American dream’ is fading. Clinton wants wages to rise in line with corporate growth and productivity. Her website says, ‘the defining economic challenge of our time is raising wages for hardworking Americans.’

Strong growth

Clinton sees four ways to achieve strong growth; investment in education and investment in infrastructure, promoting the growth of small businesses and increasing workforce participation – especially for women. She also wants to extend tax cuts of up to $2,500 per student and cut the interest rate on student loans. This new ‘College Compact’ wouldn’t be cheap – economists estimate the cost at $350bn over the next 10 years.

In addition, Clinton wants to create a ‘national infrastructure bank,’ which would use both public and private funds to invest in infrastructure projects – everything from highways and bridges to broadband.

Like students, small business would also benefit from more tax relief under President Clinton – along with greater access to capital, easier access to new markets and the inevitable, ‘less red tape.’

The labour force ‘participation rate’ – the percentage of eligible people employed or actively looking for work – has been in decline for a number of years. Clinton wants to reverse this decline by making the labour market more accessible to women through equal pay, paid leave and more affordable child care.

Fair Growth

Clinton’s drive for ‘fair growth’ is based on the premise that corporations have been earning near-record profits while wages for average Americans have stagnated. To achieve greater shared prosperity, she wants to encourage profit sharing, boost minimum wages, ensure the rich ‘pay a fair share’ and boost early learning opportunities for children.

To take just one of those points, Clinton has supported lifting the federal minimum wage to $12 (£8.36) per hour. But she sees this as only a start, and hopes that state and local government efforts will push the minimum wage even higher.

Long-term Growth

Finally, Hillary Clinton wants to emphasise long-term growth. She’ll do this by encouraging companies to plan for the long-term not the short-term, and introduce measures that will deter short-term speculation on Wall Street – and its consequent destabilising effect on the economy. One measure she has suggested is reforming capital gains tax so that it rewards long term investments aimed at creating sustainable jobs. She also wants to limit the power of shareholders who, she feels, are far too fixed on short term gains.

 

Looking at these two wholly conflicting programmes, one of them very clearly says, ‘professional politician’ while the other equally clearly says, ‘I’m new to all this.’ Its 25 years since Bill Clinton started his campaign for the Oval office, and Hillary has been ‘on message’ ever since. Trump, on the other hand, has made statements over the last 20 years without any thought of elected office – so you’d expect his position to be full of contradictions.

It’s these contradictions that would undoubtedly give stock markets – both in the US and around the word – a bumpy ride in the early weeks and months of a Trump Presidency. Markets traditionally like certainty, and that’s exactly what they wouldn’t get with Trump. Much of the long term verdict on Trump would depend on who he brought in as his advisers.

President Clinton would be much more ‘business as usual’ and – at least in the short term – the markets might breathe a sigh of relief. But she has committed to some ambitious plans that come with big price tickets. If they produce strong, long-term growth they will pay for themselves: if they don’t, then American business may become even less competitive in world markets than it currently is.

Much of Trump’s appeal on the economy is that he’s seen as a tougher negotiator – he was, after all, Lord Sugar’s equivalent on American Apprentice… whether you think that’s a qualification for the most powerful office in the world is arguable….Clearly his economic policies are – at the moment – not as well thought out as Clinton’s and the markets are almost certain to see her as the better bet, at least in the short term.

One other factor is of course international sentiment and recently a survey published in the Times shows that every major country in the word except Russia (but including China) were signed up to the Hilary for President bandwagon-metaphorically at least. Should Trump win (and after returning recently from a business trip to both East and West Coast USA only a week ago, I can tell you without doubt in my mind - he can!) then I think the world’s stockmarkets will take a big short term hit.

In the long term though, the job of the 45th President is to secure jobs in the face of cheaper foreign competition and raise the wages of the average American worker. That’s going to be a remarkably difficult circle to square for whoever wins on November 8th.

Topics:TaxUSAWages