The president’s potpourri of economic policy gets a new ingredient: immigration restrictionism.
SOMETIMES, when Russia-related noise or apocalyptic huffing over North Korea fails to entice, I like to humor my inner wonk by remembering that Donald Trump has some ideas on the economy.
The Economist ran a fantastic cover story back in May outlining “Trumponomics” in all its glorious internal contradictions and inconsistencies. In their telling, Mr. Trump’s economic policy can be distilled to three core components: “fairer” trade deals, tax cuts, and deregulation.
Start with trade. To hear it discussed in economics circles, “fair trade” is very much so a term of art, encapsulating sexy U.N. buzzwords like “sustainability” and “fairness.” To Mr. Trump, however, fair trade is a euphemism for the trade deficit. He appears to believe the trade deficit—the fact that America imports more than it exports—is some sort of empirical measure of American humiliation in world markets, or something to that effect. Thus, reduce the trade deficit and America can win again.
Needless to say, that’s terrible economic logic. America’s trade deficit reflects fundamental factors in its economy. To simplify a little, because we have a consumption-based economy, we don’t save much. As a result, we also don’t invest much either, since you need a savings base in order to invest. But enterprising capitalists need to finance their projects somehow! So to fill that investment gap, we import capital (i.e. take out loans) from other countries, leaving us with lots of cash from those nations floating around in U.S. currency markets. With that extra money, we import more foreign stuff than we export our own. Voilà—a trade deficit is born.
There are some residual concerns about the extent to which we finance our trade deficit with debt, but that qualm is hardly even a part of the debate. Mr. Trump has been peddling an Econ. 101 misconception as economic policy.
Tax cuts and deregulation are, of course, pretty standard Republican doctrine. Yet Mr. Trump’s administration is taking the wrong approach on many of his regulatory reform efforts; for instance, slash-and-burn environmental deregulation is likely to cost the U.S. more in ecosystemic damage than it will recoup in growth, with the arguable exception of the W.O.T.U.S. rule.
Other moves seem more promising. The Treasury Department sent a report to the White House laying out plans to relax mortgage-lending restrictions on small banks, defined as those with assets below $10 billion. The report also recommended reforms to the Consumer Financial Protection Bureau (C.F.P.B.), some of which, like a decennial review of old regulations, are good ideas. Having said that, I realize that I’m giving Mr. Trump a highly generous read here. Suffice it to say that in its current state, regulatory reform is a mixed bag.
On the other hand, tax cuts haven’t budged, really. I say “tax cuts” instead of “tax reform” because it looks increasingly unlikely that the Republicans will have the political willpower to muster a true tax reform effort. Ronald Reagan’s 1986 tax overhaul was a gargantuan, years-long grind that relied on a vigorous thrust by the executive.
Now, with a president who isn’t a fan of yucky policy homework—and with a West Wing populated by dramatis personae like the incomprehensible Kellyanne Conway and the self-pleasuring Stephen Bannon—it’s unclear to me how tax reform will ever come to fruition. Not only that, congressional Republicans can’t even seem to agree on an underlying tax bill from which to debate and negotiate. Paul Ryan’s fascinating and controversial “border-adjustment tax” was systematically demolished by the Koch brothers over some arcane fears having to do with import taxation and dollar appreciation. There doesn’t seem to be an obvious path forward.
But Mitch McConnell and Mr. Ryan are a lot smarter than I am. They’ll probably throw together a bill and begin another budget reconciliation sprint like they did on health care. What interests me, though, is an new component in the evolving doctrine of Trumponomics: immigration restrictionism.
Mr. Trump recently sponsored a new bill proposed by Senators Tom Cotton and David Perdue called the R.A.I.S.E. Act (another one of those horrid, forced Washington acronyms) that would curb legal immigration, change the U.S. to a merit-based visa system, and cap the number of refugees brought in annually.
I’ll spare you the soap-boxing about Lady Liberty and your huddled masses yearning to breathe free, though I do think the White House’s resident immigration restrictionist Stephen Miller has a deeply misguided and troubling ideology. The strongest case against Cotton-Perdue bill is that it would hurt the economy.
In an America whose baby boomers are swiftly retiring, immigrants are an economic necessity in order to provide seasonal workers and prop up a shrinking labor force. The Cotton-Perdue bill effectively takes the decision of how many migrant workers companies need away from companies. That sort of heavy-handed quota setting will lead to labor misallocation at best and recession at worst. Moreover, with unemployment below 4.5%, America is suffering from a labor shortage in industries like agriculture and construction, which necessitates more immigration, not less.
If Mr. Trump wants to hit 3% G.D.P. growth, as he has indicated repeatedly, it is almost impossible to see how he does that without more immigration. Even ignoring their downsides, tax cuts and deregulation alone aren’t enough.
Corporate tax cuts could help boost economic growth, but the evidence is mixed. One 2014 N.B.E.R. paper from economists Alexander Ljungqvist and Michael Smolyansky found “little evidence that corporate tax cuts boost economic activity, unless implemented during recessions.” A different study from Mertens and Ravn (2013) shows a small increase in real G.D.P.—but no significant effect on employment—resulting from corporate-rate cuts.
Trumponomics was never a particularly coherent economic doctrine, but the addition of immigration restrictionism is especially befuddling. My best rationalization is that Mr. Trump has decided culture war posturing is more valuable than good economic policy.
That’s a shame. If I could briefly make the moral case (guess I didn’t spare you the soap-boxing after all), immigrants make America a better place. They bring new customs and ideas to the vibrant American melting pot. We should be welcoming immigrants with compassion, embodying the rich tradition of multicultural exchange and mutual respect that makes America the greatest country on Earth.
The case for immigration is as strong as the case against Trumponomics. It is now incumbent upon congressional Republicans to repudiate Mr. Trump’s bold plan for a fearful, poorer, inward-looking America.
Discourse in a Discordant Society is a monthly column on society and politics. The column did not appear in July.
