Thought of the Week:
This past weekend, my wife and I attended her life-long friend’s daughter’s wedding. It was a beautiful fall day in Washington—the air was crisp, the leaves that framed the gazebo’s lawn had changed color, the bride was beautiful, and the groom was dashing in his Marine Corps dress blues. The ceremony was delightfully brief; the cocktail hour featured lamb chops and Old Fashioneds; Marine One flew overhead; and the reception included dinner, dancing, Best Man and Maid of Honor speeches, and, of course, the hora. As I sat next to my own beautiful bride of nearly 32 years, I couldn’t help but think, “the more things change, the more they stay the same.” Unfortunately, the same adage would seem to apply to future trade policy, regardless of who wins next week’s election. In Wealth of Nations, written in 1776, Adam Smith made the economic, the geopolitical, and, possibly most importantly, the moral cases for free trade. According to Smith, humans are unique in their ability to peacefully exchange goods and services to meet their needs, and on this basis, communities, cultures, and societies have been built around the principle of voluntary trade. It is when individuals freely pursue self-interest through trade, obtaining value by providing value, that the “invisible hand” yields economic and social outcomes that benefit society at large. In its (Updated) Case for Free Trade the CATO Institute builds on Smith’s observations by recognizing that free trade’s opposite, protectionism, has long propped up politically powerful workers and industries via hidden taxes on other Americans. Such protectionism is not merely economically costly but immoral in that it elevates a protected entity’s welfare above all others merely because the beneficiary is more politically connected than the victims. A new study confirms that both Smith’s theory and CATO’s observation are alive and well today. According to a summary of a paper published in the Journal of Financial and Quantitative Analysis, companies that contributed to Republican candidates during the Trump administration were more likely to receive exemptions from tariffs on Chinese goods. The study’s findings suggest that officials not only used exemptions to reward supporters, but also withheld exemptions to punish opponents. The authors examined more than 7,000 applications for exemptions filed with the United States Trade Representative (USTR), data from OpenSecrets, and business information to explore how lobbying and campaign contributions influenced exemption outcomes (tariffs placed on steel and aluminum under Section 232 appeared to be less vulnerable to political influence). Based on his own comments, former President Trump plans to impose sweeping new tariffs on all foreign goods if reelected. In fact, tariffs have become a key part of his legacy as president and are integral to his new pitch to voters. The former president’s rhetoric has noticeably intensified since his first term, and on the campaign trail, he routinely calls for blanket tariffs of as high as 20% on all imports, with a 60% levy on Chinese goods. Unfortunately, although less specific on trade policy, Vice President Harris has said nothing to counter claims that her trade agenda would largely reflect the policies of the Biden/Harris administration, which has maintained most, if not all, of the Trump tariffs. Despite free market lessons that go back as far as the writing of the Declaration of Independence on the benefits of free trade and drawbacks of protectionism, it would seem, the more things change, the more they stay the same.
Thought Leadership from our Consultants, Think Tanks, and Trade Associations
Eurasia Group Notes that Macroeconomic Impacts of a Trump Win Dominated IMF Meeting Discussions. The most recent IMF/World Bank meetings were dominated by the discussion of the economic, political, and market implications of a Trump win. There is a growing consensus that the resultant upward pressure on inflation, interest rates, and the dollar, and downward pressure on U.S. and global growth would have significant effects on markets that are not yet adequately priced in. Several of Eurasia Group’s breakout sessions identified Trump’s immigration and trade policies as those most likely to have a disruptive impact on the U.S. economy. In a conversation with Eurasia Group CEO Maziar Minovi, Adam Posen, the president of the Peterson Institute for International Economics, described how former President Trump’s immigration policies would lead to a significant labor shock that would be concentrated in the service and construction sectors, and would thus have multiplicative effects on growth. Former trade policy advisors in the Trump and Biden administrations suggested that the former president would likely move forward with tariffs early in his second term, accelerating decoupling. However, U.S. trade policy is likely to take a more protectionist tack regardless of who wins the election, driven by a bipartisan consensus that trade liberalization has too often come at the expense of national security and economic welfare.
Observatory Group Talks Trump Policy with Stephen Moore, Trump Economic Adviser and Heritage Senior Fellow. Key takeaways from an Observatory Group led discussion with Stephen Moore, assuming a Trump reelection, included:
- Former President Trump’s actual policies are likely to be more moderate than his current statements imply, i.e., his bark is worse than his bite.
- A chief economic aim would be higher growth and higher public and private sector productivity, in large part from AI for which cheap energy is needed.
- Although the former president would like to avoid growing deficits, he will seek extension of his 2018 tax cuts.
- Interference with the Fed will not be as much as feared; Chairman Powell would likely serve his full term; and the need central bank independence will be somewhat acknowledged.
- Although Trump will want to avoid damaging trade excessively with tariffs, one exception may be China; in addition, USMCA will be continued, as Mexico remains a vital trading partner.
- His mind is evolving on exchange rate policy; he is listening to both strong and weak dollar advocates’ arguments with regard to trade deficits.
- Former President Trump is keen on energy independence and free markets; natural gas and civil nuclear will be high priorities, and he is not interested in measures against climate change.
- Trump is generally anti-war and opposed to continued spending on Ukraine; he would seek settlements there and over Taiwan.
Please contact the Washington office for additional information from the discussion on: (1) trade, tariff, and exchange rate policy; (2) economic and fiscal policy; (3) monetary policy and inflation; (4) pace of change; (5) immigration; (6) energy policy; and (7) geopolitics.
Punchbowl News Reports that Most K Street Leaders Think the Election’s Outcome Will be Determined Within One Week of Election Day. According to Punchbowl News’ latest survey results, don’t bank on getting an election result before you go to bed next Tuesday. Only 10% of senior lobbyists believe America will know who its next president is on election night. According to The Canvass (the Washington office participates in The Canvass), some K Street leaders think it might take more than a few days; in fact, 28% predict it’ll be more than a week before we know if former President Trump or Vice President Harris will be moving to the White House come January. In 2020, it took four days for most outlets to call the election for President Biden. That year the election happened in the middle of a pandemic, and a record number of ballots were cast by mail, requiring extra days to count. Very few K Street Democrats—only 5%—think there will be a final result on election night. Republican lobbyists are a little more optimistic about getting a quick result; 13% said they think we’ll know on Election Day who won.
“Inside Baseball”
Last month, the Committee for a Responsible Federal Budget released an analysis of Vice President Harris’s and former President Trump’s tax and spending proposals from the 2024 campaign. Absent both campaign’s platforms were plans to address the U.S.’s rising debt and deficit. Do you think you could put together your own plan to place the country on a more fiscally sustainable path? The Debt Fixer is a one-of-a-kind interactive tool that allows you to create a plan for putting the country on a more fiscally sustainable path. The tool allows you to make many of the same tough choices that policymakers face and to see how those decisions affect the national debt. Following completion, users may share results with their individual Members of Congress. Try it out and let us know how you do.
In Other Words
“How do you like my garbage truck? This truck is in honor of Kamala and Joe Biden,” Former President Trump taking questions from inside a campaign-themed garbage truck.
“I couldn’t believe it, it was like having someone who was a drunk fraternity brother become president of the United States,” Patriots owner Robert Kraft on former President Trump.
“It was almost like Taylor Swift kind of swag…It wasn’t just a sign. It’s the kind of thing that has taken on its own life on that. And it’s like something very special exists there. And that doesn’t mean that I admire it,” Senator Fetterman (D-PA) referencing Trump superstores throughout Pennsylvania as evidence of the former president’s widespread impact.
Did You Know
The House of Representatives hit a milestone not achieved since 1977: HR 10000. The 118th Congress has now introduced over 10,000 pieces of legislation—with a big thanks going to Rep. Biggs (R-AZ), who introduced 500 pieces of legislation in a single day. Still, the 118th is nowhere close to previous records for most bills introduced. The 90th Congress introduced over 22,000 pieces of legislation during a period when members introduced, on average, 15,000 bills per term from the 1950s to 1980s.
Graph of the Week
Trump Deportation Talk Worries Builders. Despite being one of Donald Trump’s signature promises—the mass deportation of those with no legal right to be in the country—it remains an open question what impact that could have on the construction industry. Builders dealing with destruction caused by Hurricanes Helene and Milton, and expecting a burst of construction to deal with the housing shortage, are anxious about an immigration crackdown affecting a key source of labor. In fact, 1 in 4 construction workers was born outside the U.S. In Texas, about half of the construction workers are estimated to be undocumented, and in New York City, foreign-born workers hold 53% of all construction jobs.
