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President Donald Trump, in a conversation with global business leaders Thursday, provided the clearest picture yet about how he plans to deliver on the economic promises he campaigned on:
He proposed a carrot-and-stick approach to world economics that he believes will help solve the inflation crisis for good and fund his massive tax cut proposals.
Trump spoke from Washington in live-via-satellite remarks and a question-and-answer session held by the World Economic Forum in Davos, Switzerland, laying out a vision for American economic prosperity:
- Lower taxes within America’s borders, incentivizing companies to do business there.
- Raise taxes on businesses outside of America, bringing in revenue that will both pay for the lost proceeds from lower tax rates and drive more American manufacturing to grow the economy.
- Produce more oil to lower energy costs to defeat inflation.
- Lower interest rates to reduce costs for businesses and consumers.
Although Trump has articulated various aspects of his plan throughout his campaign for president, he never tied all these themes together into a singular vision to solve all that ails America’s economy, defeating high prices, high taxes, manufacturing stagnation, a slowing job market and high interest rates all at the same time.
The trouble, of course, is that Trump’s plan is not so simple to achieve — and, in fact, may be counterproductive.
How Trump says his plan will work
Here’s Trump’s plan, step by step:
Step one: Lower taxes. Trump says he will work with Congress to lower the corporate tax rate to 15% (down from the current 21%). That, he says, would ignite business growth and investment in the United States.
Step two: Raise tariffs. The lower-tax offer is good only for companies that make their stuff in America. If they want to continue doing business in the US while making products abroad, they’ll be subject to hefty penalties in the form of tariffs.
“My message to every business in the world is very simple: Come make your product in America and we will give you among the lowest taxes of any nation on Earth,” Trump said Thursday. “But if you don’t make your product in America, which is your prerogative, then very simply you will have to pay a tariff.”
Trump predicted the tariffs would bring in hundreds of billions of dollars – perhaps trillions of dollars – into the US Treasury, which would help pay down America’s massive debt and his planned tax cuts. With a carrot and stick approach, Trump said he believes companies would be incentivized to make products in America, boosting US manufacturing and its labor force and thereby growing the economy.
Step three: Lower energy costs. Trump said he believes he can make a deal with OPEC, the oil cartel, which has slowed production to keep prices higher. And he has signed executive orders to bolster US oil and gas production. Combined, Trump believes those actions would reduce energy prices, leading to lower overall prices for American consumers.
Step four: Lower interest rates. Reduced inflation could allow the Federal Reserve to lower interest rates, which Trump said he would demand of America’s central bank.
“With oil prices dropping I’ll demand interest rates will drop immediately,” which would reduce borrowing costs for businesses and consumers.
Parts of Trump’s plan have some high-profile proponents: namely JPMorgan CEO Jamie Dimon, the leader of the world’s largest bank. Dimon at Davos on Wednesday told CNBC that tariffs can be an effective economic tool – or weapon.
“I would put in perspective,” Dimon told CNBC’s Andrew Ross Sorkin in an interview. “If it’s a little inflationary, but it’s good for national security, so be it. I mean, get over it.”
That may be true for tariffs, which Trump has often threatened as part of negotiating tactics. But his full vision could be very difficult to realize.
Trump uses Davos to moan about EU red tape
Trump ridiculed the glacial pace of policymaking in the European Union on Thursday, claiming he had once abandoned a business deal because it would have taken too long to get approval.
Speaking at the World Economic Forum in Davos, Trump said he had once sought approval for a project in Ireland, but ditched it once he was told that it would take “five to six years … And I said, ‘You have to be kidding.’”
The EU is notorious for the slow pace of its decision-making, owing to its preponderance of red tape. At the higher level, agreements are often slowed by the need for consent from numerous — often bitterly opposed — stakeholders, including member countries, the European Commission and the European Parliament.
Notable instances of procedural sluggishness include a landmark trade deal recently signed with the Latin American Mercosur bloc that was 20 years in the making. Meanwhile, Turkey applied to join the bloc in 1987 — and its application is still pending.
“I got a call from the head of a major airline,” Trump recalled. “He said, sir. Can you help us? Landing in Europe is brutal — they charge us fees on everything. I said, how does it compare to China? And he said, ‘It’s much worse.’”
Friends of his in the EU, he added, “want to be able to compete better, and you can’t compete when you can’t go through the approval process fast.”
Trump also used the opportunity to blast the EU’s approach to the U.S. “They don’t take our foreign products, and they don’t take our cars, yet they send cars to us by the millions,” he said.
The bloc treats the U.S. “very badly, very unfairly,” Trump said, pointing to the recent multibillion euro fines on Google over anticompetitive business practices and Apple over the violation of state aid rules.
Photo: World Economic Forum
Source: CNN/Politico