[ Wilbur Ross & Peter Navarro| October 18, 2016 | Real Clear Policy]
Budget-deficit hawks often insist that the only way to balance the Federal budget is to raise taxes or cut spending. The far smarter path to balance the budget is simply to grow our economy faster.
From 1947 to 2001, the U.S. real gross domestic product grew at an annual rate of 3.5 percent. Since 2002, that rate has fallen to 1.9 percent — at the cost of millions of jobs and trillions of dollars of additional income and tax revenues.
Donald Trump’s economic plan will restore America’s real GDP growth rate to its historic norm. It proposes tax cuts, reduced regulation, lower energy costs, and eliminating America’s chronic trade deficit.
Hillary Clinton’s economic plan, by sharp contrast, will further inhibit growth. It proposes higher taxes, more regulation, and additional restrictions on fossil fuels that will significantly raise energy and electricity costs. Clinton will also perpetuate trade policies and trade deals she has helped put in place that have led to chronic trade deficits and reduced economic growth.
Our analysis, released in a 30-page report, indicates that the Trump trade, regulatory, and energy policy reforms would collectively increase Federal tax revenues by $2.4 trillion. In a separate analysis, the Tax Foundation has reported a dynamically scored $2.6 trillion revenue reduction from the Trump tax cuts. Taken together, these two analyses, along with proposed budget cuts, indicate that the Trump economic plan is both revenue neutral and fiscally conservative.
The Clinton plan of higher taxes, more regulation, and chronic trade imbalances promises merely more of the same slow growth, stagnating wages, and chronic budget deficits Americans have endured for the better part of this new century. While it took America over 230 years to run up a $10 trillion government debt, the Obama-Clinton Administration doubled that debt in just eight years.
It would be one thing if this massive deficit spending had spurred growth — or at least had been used to refurbish our crumbling infrastructure. Instead, all we have gotten is slow growth far below historic norms and the weakest economic recovery since World War II.
Many economists have described this era of slower growth as the “new normal.” They blame this plunge at least in part on demographic shifts such as a declining labor force participation rate and the movement of “baby boomers” into retirement. This Clintonian view of America’s economic malaise is incomplete — and unnecessarily defeatist. It ignores the significant roles higher taxes and increased regulation have played in inhibiting U.S. economic growth since the turn of the 21st century as well as our ability to fix the problems.
This new normal argument — it should more appropriately be called the “new dismal” — also ignores the self-inflicted negative impacts from poorly negotiated trade deals and the failure to enforce them. These bad deals include, most notably, NAFTA, China’s entry into the World Trade Organization in 2001, and, most recently, Hillary Clinton’s debilitating 2012 U.S.-Korea Free Trade Agreement.
In 2012, then Secretary of State Hillary Clinton promised that the “cutting edge” South Korean deal would create 70,000 new jobs. Instead, the US has lost 95,000 jobs and America’s trade deficit with South Korea has roughly doubled. Moreover, workers in the U.S. auto industry, particularly in states such as Michigan, Ohio, and Indiana, have been hard hit.
Donald Trump has pledged to renegotiate every one of America’s bad trade deals according to the principles of the Trump Trade Doctrine. The Trump Trade Doctrine states that any new or renegotiated deal must increase the GDP growth rate, decrease the trade deficit, and strengthen the U.S. manufacturing base.
Each Clinton bad trade deal — NAFTA, the fiasco of China’s entry into the WTO, the South Korea trade deficit eruption — achieved just the opposite of what the Trump Trade Doctrine would do. Collectively, the Clintons’ bad trade deals have helped shutter over 70,000 American factories, destroyed over 5 million manufacturing jobs, prevented any real growth in the average median household income, and cut our historic growth rate of 3.5 percent almost in half.
Some critics will argue that reducing the flow of cheap imports from locales such as China, Mexico, and Vietnam will be inflationary and act as a regressive tax by denying lower-income households cheap imports. In reality, four decades of one-sided globalization and chronic trade deficits have shifted wealth and capital from workers to the mobile owners of capital and reduced the purchasing power of Americans.
A visit to cities like Johnstown, Pennsylvania, and Flint, Michigan, reveals quickly the falsehoods and broken promises of those who preach the gains from trade deficits — which are often financed by those who turn a profit from offshoring production. Trump’s proposals will reverse these trends, concentrate more wealth and purchasing power in the hands of domestic workers and result in substantially higher employment. This will more than offset any price increases. Moreover, as products develop a competitive advantage in America and increase their production and margins, prices per unit will go down.
To those alarmists who insist Trump’s trade policies will ignite a trade war, we say we are already engaged in a trade war — a war in which the American government has surrendered in before even engaging. Unfair trade practices and policies of our competitors are simply overlooked or ignored. As a well-documented result, America has already lost tens of thousands of factories, millions of jobs, and trillions in wages and tax revenues.
Donald Trump will simply put our government on the field in defense of American interests. As Trump pursues a policy of more balanced trade, our major trading partners are far more likely to cooperate with an America resolute about balancing its trade than they are likely to provoke a trade war.
This is true for one very simple reason: Our major trading partners and deficit counterparties are far more dependent on our markets — the largest in the world — than we are on their markets.
Consider that in 2015, we ran a trade deficit in goods of $746 billion. 76 percent of that trade deficit in goods concerned just four countries: China ($367 billion); Germany ($75 billion); Japan ($69 billion); and Mexico ($61 billion).
If we look at the bilateral relationships of America with each of these countries, improvement in our trade balance is clearly achievable through some combination of increased exports and reduced imports, albeit after some tough, smart negotiations — an obvious Trump strength. The same possibilities exist with countries where we are running smaller, but nonetheless significant, deficits, such as Vietnam ($31 billion), South Korea ($28 billion), Italy ($28 billion), and India ($23 billion).
Such deficit reduction negotiations will not be wild-eyed, hip-shooting exercises. A key part of the Trump strategy will be to divert some of the products our deficit counterparties import to U.S. suppliers.
For example, many of our trading partners with which we run large trade deficits import substantial hydrocarbons from elsewhere. It would not be difficult for, say, China, Japan, Germany, and South Korea to buy more U.S. hydrocarbons. Trump intends to end the regulatory constraints on hydrocarbon production and hydrocarbon exports, resulting in as much as $95 billion gains for the U.S.
Our deficit counterparties also import lots of industrial equipment and supplies of plastics and other materials, some from the U.S. already. There is ample room here for them — along with countries like India, Mexico, and Vietnam — to switch vendors.
Trump’s strategic approach to trade negotiations would begin with product-by-product and country-by-country analyses. Our negotiators would set goals that are achievable and pursue them fiercely. No prior administration has ever approached trade as surgically as a Trump Administration would.
As a business person, rather than a politician, Trump understands this: There is no more reason to let our major trading partners take advantage of us than there is for a large private company to permit its vendors to do so.
You will notice we have not mentioned tariffs. They will be used if necessary against mercantilist cheating, but only in a very precise and defensive way.
Ultimately, our view is that doing nothing about unfair trade practices is the most hazardous course of action — and the results of this hazard are lived out every day by millions of displaced American workers and deteriorating communities. We simply cannot trade on their one-sided terms; they are just too destructive to the U.S. growth process.
At the end of the day — and on November 8th — voters have a very clear choice between Trump’s smart path to rapid growth and budget balance and Hillary Clinton’s new dismal world of economic stagnation. At least on the economy, this choice is clear.
Wilbur Ross is a private equity investor. Peter Navarro is a business professor at UC-Irvine. Both are senior policy advisors to the Trump campaign.