Trump and His Trade Wars – A Fiscal Policy Genius?

As the US undergoes the longest period of expansion in decades, economists and politicians are worries that the US is pushing its economy too far, and that we may face a period of recession to reset our economy into equilibrium.

In the Keynesian economics that our schools teach today, there are two ways to ensure a stable economy – fiscal policy and monetary policy. The latter, monetary policy, is undertaken by the Federal Reserve to adjust the interest rates, changing the cost of borrowing money. The lower the interest rate, the cheaper it is to borrow money, and the more investment that will take place. This manifests in businesses borrowing more to invest in buildings, consumers spending more because saving money doesn’t net as high of an interest rate

Traditionally, good economic policy is a coordinated effort by both the Federal Reserve and the capital-G Government. However, kumbaya coordination is not Trump’s forte. He prefers to deal through independent decisions that bully others into submission.

When we look at the PR push by the White House, Trump seems to be pursuing expansionist fiscal policy. He’s wants the public to think he’s stimulating the economy through simultaneous tax cuts and increased government spending.

Trump is able to appeal to his voter base through the rhetoric – he looks to be standing up to strong government meddling in economics through his bashing of the Fed, while also pursuing expansionary tax and spending policy. Even advancing tariffs on foreign countries is seen as being tough on our competitors, adding to his image of being a tough businessman.

Because of the pubic’s paucity of understanding into the underpinnings of the global economic system, Trump’s approval ratings remain steady and high. Normally, such policies would lead to inflationary pressure and a ballooning government deficit. However, the industry-crushing effects of the trade war tempers the economy from overheating. Either way, his policies provide his successor with easy steps to take to ward off any recession – merely rolling back the tariffs will add free market fuel to the economy.