“You understand the expression ‘prime the pump’?” My colleagues from The Economist and I nodded. Ahead of our meeting with Donald Trump in the Oval Office earlier this month, we had discussed with his staff our desire to focus the discussion mainly on the president’s economic policy. Now the president appeared to be testing our knowledge of Keynesian economics.
It seemed a bit odd. But, as Trump, resplendent behind the Resolute Desk, warmed to his theme, it was about to get stranger.
“Have you heard that expression used before? Because I haven’t heard it,” mused the 45th president, illuminated by the sunlight pouring in from the Rose Garden behind him. “I mean, I just… I came up with it a couple of days ago and I thought it was good. It’s what you have to do.”
Count the ways in this was crazy. Trump did not invent the expression ‘prime the pump’. Shorthand for a short-term fiscal stimulus to counteract the economic effects of a downturn, it has been in use for almost a century. A quick search of The Economist’s archives suggests it may first have appeared in our publication in 1934. Moreover, if Trump did not know the details of that economic history, he at least knew that he had not dreamed up the phrase a day or two earlier. He had been using it, as a perusal of his own campaign speeches reveals, for a couple of years. “Going to prime the pump! Got to prime the pump! Got to get the jobs,” Trump thundered at a rally in Iowa last December.
The president’s intemperance, his habit of saying whatever pops into his head, and his narcissism, it seems, have not been moderated in the Oval Office. It felt genuinely astonishing, as we, including The Economist’s editor-in-chief, who was for many years the magazine’s chief economics writer, sat facing the American president, to hear such an absurd statement from that great office-bearer, in that historic place. So staggering, in fact, that it seemed a lesser order problem that Trump’s use of the economics phrase he claimed to have recently invented was also erroneous.
The fiscal splurge he advocates, in the form of unfunded tax cuts that by one estimate would cost up to $7 trillion over a decade, is not Keynesian at all. America is experiencing sluggish economic growth—currently around two per cent—due to the same combination of an ageing population and low productivity growth weighing on most developed economies. But it is not experiencing an economic downturn. On the contrary, the US labour market looks to be at close to full employment.
In that context, Trump’s promise to blow up America’s already massive budget deficit is hard to justify. His treasury secretary, Steven Mnuchin, who attended our interview with the president, as did Gary Cohn, another former investment banker, who is the president’s chief economic advisor, naturally disagreed. Mnuchin claims Trump’s proposed taxes would create sufficient extra growth to compensate for the extra national debt. “Economic growth under the Trump administration could increase revenues as much as $2 trillion over the ten-year period of time,” he piped. This is a hypothesis often offered by Republicans when in power (in opposition, they tend to be the most rapacious of fiscal hawks). It is also a fallacy—a convenient idea that has never been borne out by reality and there is no reason to think it would now. Shame on Trump and his economic team—the best ever assembled, he naturally claims, though there is not an eminent economist among them—for dishing up such reheated, self-serving nonsense.
It is a mark of how chaotic Trump’s first three months in office have been that his economic plans have received relatively little attention. There has been so much scandal to report on instead: including the daily circus of the president’s outrageous tweets and court dramas; his failed efforts to bar the citizens of some Middle-Eastern countries from America; revelations that the FBI is investigating his associates—and perhaps the president himself—in a counter-espionage probe into Russia’s effort to rig last year’s election in his favour. There has also been a good deal more scandal since our meeting in the Oval Office earlier this month—including allegations this week that Trump had urged James Comey, the FBI director he has since sacked, to drop the bureau’s Russia probe. Perhaps Trump will not make it through a full term—the latter allegation carries more than a whiff of the charge, obstruction of justice, that put paid to another Republican president, Richard Nixon, in 1974. Then again, there is currently little prospect of Trump being impeached, a matter for Congress, which is currently controlled by Republicans. So his plans for the world’s biggest economy remain strangely under-scrutinised and critically important.
We opened by asking the president whether there was such a thing as “Trumponomics”. He seemed to enjoy the question. Though a little more severe and less relaxed when I had last seen him, during the election campaign, in the homey confines of his office at Trump Tower, Manhattan, Trump is still very different in private from the snarling public persona he projects on the trail. He is charming and solicitous. Much as he derides journalists in public (“enemies of the people,” he calls us), he seems to love talking to them. “It’s an interesting question,” he mused. “I don’t think it’s ever been asked quite that way. But it really has to do with self-respect as a nation. It has to do with trade deals that have to be fair and somewhat reciprocal, if not fully reciprocal.”
Here is another conundrum of Trump’s economic thinking. Much of his economic programme consists of the sort of standard pro-business, supply-side measures that every Republican administration since Ronald Reagan has embraced. His proposed tax-cutting, from which the richest Americans and corporations would benefit most, is a case in point. Similarly, the president has launched an unprecedented effort to cut regulation, with particular emphasis on sweeping away rafts of environmental and consumer protections, many of them introduced under his predecessor, Barack Obama. It is not pretty or wise; such actions at least represent a coherent economic and political view. Yet, Trump’s quasi-protectionist view of trade cuts right against that. And it represents his most enduring and, it may prove to be, his most consequential political position.
America’s relationship with China is long. Of course, by China standards, it’s very short! Xi Jinping was telling me, they go back 8,000 years, we have 1776 is like modern history. They consider 1776 like yesterday and they, you know, go back a long time... We got along great
The president believes America’s trade terms are rigged against it. “We have so many bad trade deals. To a point where I’m not sure that we have any good trade deals,” he told us. The extraordinary benefits America has reaped from trade in recent decades do not support the president’s analysis. For example, Trump takes particular aim at the North America Free Trade Agreement (NAFTA), a deal to boost trade between Mexico, America and Canada, that came into effect in 1994. “I don’t know who the people are that would put us into a NAFTA, which was so one-sided,” he said, “Both from the Canada standpoint and from the Mexico standpoint. So one-sided.” By almost any objective measure NAFTA has in fact been a great success. Trade between America and Mexico has increased ten-fold since it came into force. Yet, just as Trump is not beyond claiming well-known economic terminology as his own, he also has his own way of looking at such things.
In the days leading up to our meeting, he had threatened to begin proceedings to pull America out of NAFTA. Among his gripes with the agreement, he said, was the fact that its management was anti-America. “You know, like, at the court in Canada, we always lose. Well, the judges are three Canadians and two Americans. We always lose. But we’re not going to lose any more. And so it’s very, very unfair.” After the interview, I tried to work out what the president had meant by that. He had claimed that America was permanently under-represented in NAFTA’s dispute resolution panel, but this is not true. In the event of a dispute between, to take his example, Canada and America, each side picks two judges, and they toss a coin to decide a fifth. Almost never, a recent study suggests, has a decision been reached by this panel after the judges split along national lines.
Trump’s antipathy to trade agreements, which he has been demonstrating at least since the 1980s, appears to be as personal and psychological as it is fact-based. He has long branded himself as a master dealmaker, has expressed contempt for the US Government’s ability to do business of any kind, and is therefore almost bound to conclude that America’s trade deals are hopeless. He also views any transaction in the same zero-sum terms as he describes his business deals. In diplomacy as in real estate, for Trump, there is always a winner and a loser. And the fact that America, for reasons related to its early leadership role in the global trade architecture, levies lower tariffs on many foreign imports than other countries levy on its goods, makes it, as far as Trump is concerned, a big loser.
Of course, trade and foreign policy are not like real estate at all. Trump is not merely confused about the details of the trade agreements he decries, he also appears not to understand trade’s transformative growth-boosting, technology- transferring economic potential and the extent to which America has used it to promote global stability, as well as its own enrichment.
At the least, Trump says he will demand equal or “reciprocal” tariffs between America and its trade partners. To get them, he says he would be prepared to start trade wars, though that could threaten huge economic damage to America and the recovering world economy. Meanwhile, to measure his progress in getting better trade deals, he says he will be watching the trade deficits America runs with most of its trade partners. Trump views this as another sign that America is being fleeced. “At some point I would like to get it at zero, where sometimes we can be up and sometimes they can be up,” he says. This makes little sense. America’s trade deficit is more a function of the willingness of foreigners to own dollar-denominated assets, in turn a testament to the strength of the US economy, than it is determined by the fine print of trade deals. Moreover, if Trump succeeds in his other economic goal, to boost growth, the trade deficit is likely to increase.
For these reasons, many have discounted Trump’s sabre-rattling on trade, including investors, who appear still to be banking on growth and no accompanying Trump- induced economic shocks. America’s main stock market is up by double digits since his election. And, to be fair, there have been reasons to support that complacent view.
Trump did not, after all, take America out of NAFTA. He says this is because his Canadian and Mexican counterparts implored him to renegotiate its terms instead. “They called separately, ten minutes apart. I just put down the phone with the president of Mexico when the prime minister of Canada called,” he said. “And they both asked almost identical questions, “We would like to know if it would be possible to negotiate as opposed to a termination.” And I said, “Yes, it is. Absolutely.” There are also reports that Trump changed tack after it was pointed out that some of the states that voted for him last November would be hardest hit by the economic damage America would suffer from falling out of NAFTA.
The president has also taken a much softer line on his other erstwhile main bugbear on trade, China. He once promised to brand it a currency manipulator and to slap a 45 per cent import tariff on Chinese goods. Having dropped both those threats, he now enthuses about his budding friendship with China’s President, Xi Jinping, whom Trump hosted for talks at his Florida estate. America’s “relationship with China is long,” he recalls,“Of course, by China standards, it’s very short! You know when I’m with [Xi Jinping], because he’s great, when I’m with him, he’s a great guy. He was telling me, you know they go back 8,000 years, we have 1776 is like modern history. They consider 1776 like yesterday and they, you know, go back a long time... We got along great.” Some Republicans think Trump is being made a fool of by Xi. But if so, that might be better than his threatened alternative, a trade war between the world’s two biggest economies.
He also appears to have adopted a softer line on a related issue, immigration, which Trump had promised to clamp down on ahead of the election. Now he says he has only illegal immigration in his sights. “I absolutely want talented people coming in. I want people that are going to love our country.” Yet, there is still plenty of potential for Trump to do economic damage—in part because of the scandals roiling his young administration.
Even before, Trump was finding it hard to unite Republican lawmakers behind much of his policy agenda. After eight years of offering implacable opposition to Obama’s proposals, many Republicans find it hard to support almost any government initiative—even when it came to passing a healthcare bill to replace Obama’s healthcare reform, which they hate. Because Trump had been banking on saving billions by scrapping Obamacare, this has in turn made it harder for him to push through the tax reform he once promised. Hence, his latest enthusiasm for unfunded tax cuts instead. Other elements of Trump’s economic plan also look dead in the water. The biggest is a trillion-dollar investment in infrastructure which he once promised, but would need Democratic support for, and which he can probably, therefore, kiss goodbye to.
Having seized power by promising radical steps to make “America Great Again”, Trump is facing the prospect of having one of the thinnest legislative records of any recent president. Cutting regulation and taxes is about all he can currently be confident of getting done. This may in turn increase his resolve to take dramatic steps on trade, over which he enjoys extensive powers to act of his own volition. He assured us that he was planning nothing less, starting with a massive renegotiation of NAFTA. “Big isn’t a good enough word,” for the changes he plans, he assured us. They will be “massive.”
Yet how, we concluded by asking the president, will he measure the success or failure of his overall presidency? “I think the score is going to have to be at the end of the game,” he said gnomically. In Trump’s current tight corner, it was tempting to wonder whether that will be in eight years, in four years—or maybe it will be even sooner.