📝 usncan Note: The Long Run Effects Matter Most
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Over the past few weeks, our economic news has been dominated by stories about the recently strong stock market, the increasingly weak job market, and whether or not the Federal Reserve will soon cut interest rates. These are all important and newsworthy issues.
But Donald Trump’s long-run effects on our economic growth will matter much more over time; and it is here, in effects that usually don’t make the headlines, that his economic policies could be mostly costly. Even small declines in growth rates over time can cumulatively have large impacts on our incomes and standards of living – and the declines may not be so small.
Economic growth over time, and the extent to which such growth is broadly shared, largely depends on three key factors. First, we need a sizable labor force that is healthy and skilled. Second, we need well-functioning capital markets that can draw investments from financiers with confidence in our economy. Third, we need leading-edge technologies that bolster our productivity and competitiveness. More broadly, we need stable markets here and abroad, based on good relationships with our trading partners, and sensible public investments in the key technologies and leading industries of the future (which private markets alone may not fully generate).
On virtually every one of these dimensions, the economic policies of the Trump administration are damaging our future productivity and our ability to compete with China and other rivals.
For instance, Trump’s attacks (mostly through RFK Jr.) on vaccinations will likely worsen the health of US workers, making illness and epidemics more likely. His dismantling of the Department of Education will eliminate the data, research and guidance needed to improve worker skills; and his attacks on immigrants will dissuade many from coming here, even legally. The native-born workforce is shrinking, as Baby Boomers retire and US birth rates decline, but the immigrants we need to shore up the labor force will be much more reluctant to study or work in the US.
Trump will also damage our ability to attract important financial investments for the capital markets. His recent tax cuts add to the unsustainable public debt the US is piling up, and to investor doubts our financial health over time. This will raise the interest rates they require for investments – and even more so if Trump’s pressure on the Federal Reserve to lower them undercuts confidence in our ability to keep inflation low. Without a major course correction, a hugely damaging financial crisis at some point becomes more likely with each passing year.
And Trump’s attacks on American universities and their research funding will inhibit our technological progress. While privately-developed Artificial Intelligence (AI) will help on this front, we also need data and research to ensure that workers attain the skills to use AI and not just be replaced by it. But the funding for such research is becoming scarcer, while Trump’s attacks on the Bureau of Labor Statistics undercut confidence in the data they collect. In addition, the foreign-born Americans who make up large fractions of our scientific and engineering workforce in the US will be much fewer in number, hurting our progress on these fronts.
Among the greatest threats to our future economic prosperity is the competition we face from China on a range of critical future technologies and industries – such as the most advanced computer chips, clean energy products (like electric cars and solar panels), and other forms of advanced manufacturing. Indeed, China clearly intends to dominate world markets in these areas, and is building the domestic capacity to do so.
But instead of working with our allies and trading partners who share these concerns, we are undercutting these relationships and driving many countries (like Brazil and India) into China’s embrace. Trump’s dismantling of Biden’s clean energy investments will enhance China’s domination of these markets. And both the levels and volatility of our tariffs are causing many countries to view China as a more reliable trading partner than the US, thus enhancing their foreign relationships at the expense of our own.
So as we ponder major short-term news in the labor market or on interest rates, which are admittedly important, we also need to keep our eyes on factors that drive longer-term American prosperity. For it is here that the costs of what Trump is doing will be the greatest over time.
