Predicting the economics of a Trump/Pence administration

Predicting the economics of a Trump/Pence administration

Among the many questions that will be asked at this week’s GOP convention is how a Trump/Pence ticket would play out economically. Here, GRI examines what the duo’s first 100 days in office might look like.

Republican presidential nominee Donald Trump’s choice for running mate left some enthused and others shaking their heads. Mike Pence brings with him both mild-mannered political astuteness and evangelical-friendly social conservatism that is fairly respected in Indiana but not widely known outside of the Hoosier state. What isn’t so clear, though, is what sort of economic and business policies a Trump/Pence administration would push for early in office.

Indeed, one would not be remiss to ask what difference Mike Pence will bring to the Trump platform, given that his formal unveiling on Saturday was less about the bottom of the ticket and more about the top. Pence’s twelve years in Congress and four more at the State House in Indianapolis also aren’t matched by an equally sizeable legislative record.  

However, assuming that the somewhat odd couple’s first 100 days of economic policies play out something like what they have called for in the past, here is what they might look like:

Lower taxes and less deductions

If there’s one thing both Trump and Pence agree on, it’s reforming the tax system across the board. Of course, the devil is in the details, especially with a tax code as complex as it is in the US.

Trump’s September 2015 tax plan and comments he made in May on possibly raising taxes on the rich obviously don’t mesh. But what does is his overall view on reducing corporate tax rates and most tiers of individual rates, as well as jettisoning the federal estate tax and the Alternative Minimum Tax (AMT). Also, expect President Trump to take aim at corporate inversions and other types of tax-dodging restructurings by some of America’s largest businesses.

Pence has fiercely lobbied for (and passed) many of the same policies. In fact, as governor he even managed to further cut by 5% what was already the nation’s second-lowest individual income tax. What is even more notable is his support for a flat income tax, but it is unlikely that Trump will desire to expend significant political capital on such a proposal, given that it has no chance of legislative success.

Most interesting will be how strongly Trump and Pence will try to clamp down on tax credits and deductions. If a recent Committee for a Responsible Federal Budget assessment of Trump’s tax plan holds anywhere near true, the answer may be very strongly, especially in light of the need to make up for the potentially huge reduction in revenue, to the tune of $10.5 trillion over a decade. This also doesn’t bode well for a Balanced Budget Amendment, similar to what Pence proposed in Indiana last year.

Keep NAFTA, bye bye TPP and TTIP

In short, this could get awkward. Pence is an avowed free-trader, having voted for every single free trade agreement that came before him during his tenure in Congress. Trump is an anti-trade agreement populist, directing much of his ire at the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnerships (TTIP), which are currently being negotiated.

The latter two are in serious jeopardy of being scuttled entirely under a Trump/Pence presidency. On the North American Free Trade Agreement (NAFTA), however, Trump may have a harder time fulfilling his campaign promise to renegotiate the accord. NAFTA has provided a boon for agricultural exporters, along with those manufacturing facilities well-integrated into cross-border automotive supply chains in Indiana and throughout the Rust Belt. Here is where Pence may be able to soften Trump’s touch: keep NAFTA as is, but pass measures that augment vocational training while diverting the public’s attention to China, which the US can blanket with even more antidumping measures and countervailing duties.

Agricultural assistance

This is where Pence can be expected to take the lead and build on the agricultural programs he helped put in place in the Hoosier State, including a program giving farmers more flexibility to choose what crops to grow while still receiving federal support.

Still, taking into account Pence’s bonafide fiscal conservative credentials (he was the only member of the GOP’s House or Senate leadership to speak at the inaugural 2010 Tea Party rally in Washington), look for smarter and not more sizable agricultural assistance: cutting subsidy payments from the Farm Bill for the top 10% but raising them for smallholder farmers, expanding agricultural extension programs at universities, reducing taxes for farmers, enhancing existing crop insurance schemes, fighting back against GMO food standards in Europe and beyond, and pushing for increased liberalization of agricultural tariffs and quotas at the World Trade Organization.

More oversight of the Fed

In a nod to the libertarian wing of the Republican Party, expect a Trump/Pence administration to make good on their previous pledges to “audit” the Federal Reserve. Just don’t expect anything drastic to come of it.

If Pence had his way, the Federal Reserve’s dual mandate system would revert to a focus on price stability, in spite of the persistent low inflation the US has seen in recent years. In the past, he has even called for a “debate over gold and the proper role it should play in our nation’s monetary affairs” – an alarming statement for investors that would be unthinkable for a major party candidate to utter less than a decade ago.

As a property developer and financial mogul, though, Trump understands the importance of allowing the Federal Reserve to maintain control of the levers of monetary policy, not to mention low interest rates. Expect a high-profile audit of the Fed to take place, mild political pressure against a future QE4, more mention of price stability in the minutes of the Open Market Committee, but not much more.

Boost energy production

It’s not surprising that when a “Drill, Baby, Drill” candidate and his Midwestern, ag-friendly sidekick come together, increasing domestic energy production will be high on the list.

Production of both renewables and non-renewables in the US are already relatively high, but both could be given a boost by scaling back Environmental Protection Agency regulations, and that is exactly what Trump and Pence will aim to accomplish: eliminating all restrictions around fracking on federal lands, ending the Obama administration’s “war on coal,” making it far easier to drill offshore, and pulling out of the Paris Climate Accords and all other multilateral negotiations that limit national carbon footprints. Trump/Pence will also look to bolster the federal Renewable Fuel Standard, giving the corn/ethanol industry a significant lift.

The net effect of all these policies may certainly be an energy glut. This in turn may lead to further encouragement of natural gas exports as well as a shift away from purchasing Saudi oil, which fits in well with Trump’s previous criticism of the Gulf monarchies.

Categories: Economics, North America

About Author

Kevin Amirehsani

Kevin is a Denver-based policy and public engagement consultant. He was previously the head of operations for a solar energy startup in Lagos, researcher for the US Commercial Service in Cape Town and the Institute for Democratic Governance in Accra, and Peace Corps volunteer in Cameroon. He holds an MSc. in International Political Economy from LSE along with a B.S. and B.A. in Industrial Engineering and Political Science from UC Berkeley.