Donald Trump has no coherent economic policy. It’s all fly-by-night, seat-of-the pants stuff. Trump truly believes he can command the U.S. economy. It’s not ideology but his narcissism and megalomania at work.
Trump has become an accidental socialist, devoted to government central planning of the economy. He’s choosing winners and losers in the economy, most clearly expressed in his instruction to the Department of Energy to overturn competitive electric power markets in half of the U.S. in order to favor coal and nuclear power. Trump asserts “national security” as a rationale for attempting to invoke provisions of the Federal Power Act and the 1950 Defense Production Act, without any evidence.
Trump is also an unwitting mercantilist, the discredited 17th Century economic policy of Britain and others to keep finished goods from foreign countries out of the country through stiff tariffs, That was also the U.S. policy in the Smoot-Hawley Tariff of 1930, designed to keep foreign goods out of U.S. markets, a disaster that contributed to the deep, long-lasting, worldwide Great Depression.
With his tariff announcements and threats, Trump is again using the power of the federal government to pick economic winners and losers, in this case protecting the weak and largely insignificant U.S. steel and aluminum industries. This is doomed to create more damage to the U.S. and world economy. The protectionists in the White House, led by Trump, ignore that outcome.
Trump’s draft order to the Department of Energy, following an earlier failed effort to get the Federal Energy Regulatory Commission to eviscerate its competitive wholesale markets, is a telling example of picking economic winners and losers. It’s unlikely Trump views that as out of line. But it goes against everything economic conservatives have preached, and their successful policies, since the Reagan administration.
The Wall Street Journal’s Greg Ip recently wrote, “President Donald Trump’s efforts to revive coal mining have been criticized as picking winners. Actually, it’s more like picking losers: coal has become a sunset industry as cleaner energy sources rapidly get cheaper. If Mr. Trump succeeds at reversing the tide, it will come at a steep price, in both dollars and lives, most tragically for the coal miners he seeks to help.”
Ip added, “Fuel supply problems account for an infinitesimally small share of electrical outages and when supply problems do crop up, they are usually coal’s fault. During Hurricane Harvey last summer, two Houston-area coal-fueled generating units had to switch to natural gas because their coal pile was saturated with rain.”
A more persuasive case can be made for keeping nuclear capacity in the generating queue, but the administration makes no such case. Trump’s thrust is coal and coal miners, before whom he prostrated himself in the 2016 campaign. CNBC reported, “Since Trump was elected, 36 coal plants have retired and 30 have announced they will close, according to a count kept by the Sierra Club, an environmental group.”
Predictably, environmental groups and the giant wholesale competitive PJM Interconnection have slammed the Trump plan. So have economically conservative groups that have long been a source of Republican economic policy. CNBC quoted Peter Van Doren of the libertarian-oriented Cato Institute, “If you can find anyone who’s market-oriented or says they are conservative and supports this, they should turn in their badge.”
The Washington Examiner, a decidedly-conservative newspaper, called the Trump energy plan “a ridiculously bad idea.” The paper editorialized that “this unprecedented government interference in energy markets will harm the economy under Trump’s watch. If energy prices rise, everyone will feel it.”
Then there is Trump’s trade policy, if it deserves description as “policy”. Trump has picked some of the U.S.’s closest allies – Canada, Mexico, the European Union – for his economic first strike. Washington Post columnist Catherine Rampell said, “Astonishingly, the White House claims that alienating these important military allies is necessary to protect America’s national security. These trade policies, and the supposed rationale behind them, bear an uncanny resemblance to classical mercantilism.”
Mercantilism, she notes, had this logic: “Military power comes from wealth; wealth comes from accumulating gold and silver; and the way you accumulate gold and silver is through trade surpluses. Your merchant ships should go out loaded with attractive goods and came back overflowing with shiny specie.”
But Adam Smith in his seminal 1776 “The Wealth of Nations” blew mercantilism out of the water. As Rampell said, “Smith showed that real national wealth doesn’t come from amassing piles of gold, which are transitory. Wealth comes from increasing productivity — that is, by figuring out how to make stuff more efficiently, which permanently increases living standards.”
Trump’s approach to mercantilism is predictably illiterate and half-baked. Larry Summers, economic guru and Clinton administration Treasury secretary, wrote in the Washington Post recently that given Trump’s central idea that a positive trade balance is a key to U.S. economic health, “the United States is proceeding in a remarkably unstrategic and ineffective way. Indeed, it is violating almost every strategic canon.”
Trump’s uninformed socialist and mercantilist policies are unwise, unfounded, and unproductive. That’s par for the course for this administration.
— Kennedy Maize