Trump’s economic agenda could disrupt US and world economies

Former president Donald J. Trump is running to return to the White House with an ambitious economic agenda. He will need Republican control of the Senate and the House to carry out some but not all of his proposals, and if he avoids congressional approval and uses his power to issue executive orders (EOs) that arguably reach beyond the authority of existing statutes, as he did when he was president, he will surely be challenged in court.

Three sources help preview Trump's agenda for economic policy: Trump's own statements; the 2024 Republican Party platform; and the Heritage Foundation's Project 2025, which was put together by some of his former advisers, although the Trump campaign has said the project does not necessarily reflect his views.

Trump's Declarations

Trump's headline economic goals include a 10 percent tariff across the board; a 60 percent tariff on Chinese goods; renewal of the 2017 Tax Cuts and Jobs Act, which expires at the end of 2025 and would require congressional approval; and a reduction in the corporate tax rate, which was lowered from 35 percent to 21 percent in 2017, to 15 percent. Trump has said he would like to replace a large chunk of income tax revenue with tariff revenue. As Clausing and Obstfeld have argued, this is simply not possible.

Trump's tariff proponent and former trade ambassador Robert Lighthizer, is sometimes mentioned as a potential Treasury secretary in a Trump administration. Trump, Lighthizer, and Senator JD Vance, his vice presidential running mate, have all advocated a devaluation of the dollar to improve the trade balance by making exports less expensive and imports more expensive. It's not clear whether a Trump administration would simply commend a weaker dollar or would go further and implement tax or monetary tools to reduce the value of the dollar relative to foreign currencies. But "talking down the dollar" is opposed by many on Wall Street, a fact that could complicate that goal because several Wall Street names have been mooted as possible candidates for Treasury secretary. The best known are JPMorgan Chase CEO Jamie Dimon and hedge fund billionaire John Paulson. No recent Treasury secretary and few Wall Street titans champion a weak dollar. Trump might seek to enlist the Federal Reserve, perhaps by putting his Treasury secretary back on the Fed's Board of Governors (the secretary's position before the Banking Act of 1935) or by trying to remove Fed chair Jerome Powell and replace other Fed members. Or he might seek a new tax on capital inflows, an approach explored and rejected by Obstfeld. Either measure would require congressional assent.

Republican Platform

Trump personally revised the 2024 Republican platform, making it much shorter and sprinkled with random capitalization. The introductory fifth and six bullet points speak to taxes and tariffs. Its core tax goals: make the 2017 Tax Cuts and Jobs Act (TCJA) permanent but add an exemption for tips. If Democrats capture the House of Representatives, they will insist on major changes before agreeing to any extension. Business provisions in the TCJA, including the 21 percent corporate tax rate, do not expire. But Trump wants to cut the corporate rate further, to 15 percent, anathema to the Democratic Party. Unless Republicans control both the Senate and the House, it will be impossible for Trump to enact the legislation he seeks, especially on corporate tax rates and TCJA provisions that benefit high income taxpayers.

The platform also espouses Trump's trade goals: reduce the trade deficit, impose "baseline" tariffs (a reference to the 10 percent across the board tariff), embrace Buy America, and enact a law giving the president the authority to match high foreign tariffs with equally high US tariffs. With these measures, Trumps seeks to make America a "Manufacturing Superpower." Buy America authority is already on the US statute books, and there is ample statutory authority to curtail trade with China. But new legislation is very likely required both for the across the board 10 percent tariff and the reciprocal tariff authority. Trump's lawyers might argue that these actions can be done by executive order, citing the International Emergency Economic Powers Act of 1977 (IEEPA), Section 301 of the Trade Act of 1974, and Section 232 of the Trade Expansion Act of 1962, but that path risks a court injunction for invading congressional trade powers (Article I, Section 8 of the Constitution).

The 2024 Republican platform is silent on budget deficits, unlike the more traditional 2016 version. Moreover, the 2024 platform promises not to "cut one penny from Medicare or Social Security." Entitlement reform and budget deficits are not on the table, precisely Trump's preference.

Heritage Foundation 2025 Project

While Trump has claimed ignorance of the Heritage Foundation presidential transition project, it was undertaken with his re-election in mind and most of its authors belong to the Trump ideological circle. The trade chapter of the project features Peter Navarro, Trump's trade adviser and principal advocate of high tariffs. But in a sign that libertarian oriented conservatives disagree on this subject, a separate entry in the trade chapter makes the case for free trade. Far afield from economic reality is the Federal Reserve chapter, which yearns for a return to free banking or the gold standard—ideas too bizarre even for Trump—and at minimum seeks to end the Fed's "dual mandate" (to consider both employment and inflation in setting monetary policy).

More interesting is the Department of the Treasury chapter, written by three Heritage Foundation scholars (William L. Walton, Stephen Moore, and David R. Burton). They outline a conservative roadmap in great detail, with tax recommendations that are closely aligned with Trump's campaign proposals. Reduction in the budget deficit is to be achieved by cutting spending (except for defense), not raising taxes.

If congressional opposition puts the major goals out of reach, Trump might turn to easier "reforms" as consolation prizes. Several proposals in the Heritage chapter deserve to be called out because of their radical flavor. Those marked with an asterisk would require congressional assent, just like the major tax and tariff proposals.

• Withdraw the United States from the Organization for Economic Cooperation and Development (OECD), the World Bank, and the International Monetary Fund (IMF).*
• Require a super three-fifths majority for Congress to raise future taxes.*
• Extend oversight by the Committee on Foreign Investment in the United States (CFIUS) to cover greenfield investments.
• Name the Department of Defense as co-chair of CFIUS along with the Treasury Department.
• Make top-level Internal Revenue Service officials subject to presidential appointment (only two are so named now).*
• Merge into a single office the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Federal Reserve's supervisory functions.*
• Revise or repeal substantial parts of the Dodd-Frank Act with respect to the supervision of financial institutions.*
• Abolish the Federal Reserve's lender of last resort function. Allow financial institutions to fail under regular bankruptcy provisions.*
• Privatize the federal home loan institutions, Fannie Mae and Freddie Mac.*
• Close the Treasury's Diversity, Equity, Inclusion, and Accessibility office.
• Withdraw the United States from the UN Framework Convention on Climate Change and the Paris Agreement.
• Close the Treasury's "Climate Hub" office.

Conclusion

If Republicans sweep the presidency, the Senate, and the House, substantial parts of Trump's tax and trade goals might be implemented. This could prove highly disruptive not only to the US economy but also the world economy. Moreover, Trump could instruct his Treasury secretary to implement some items on the Heritage Foundation's list. But if Democrats capture the House or hold on to the Senate, many items on Trump's economic agenda will remain out of reach. Trump could still issue EOs to curtail trade with China and impose high tariffs on imports that arguably imperil national security. With little effort, he could extend CFIUS oversight to cover greenfield investment (new plants, not takeovers of existing firms) and make the Department of Defense the co-chair. Like other asterisked items in the Heritage list, a Democratic House would not accept withdrawal from the OECD, the World Bank, or the IMF, but Trump could probably persuade Congress to reduce funding for those organizations.