While President Trump would be considered a conservative in areas such as national defense, Supreme Court nominations, and various social issues, he most definitely would not be considered an economic conservative in the traditional sense as embraced by the Republican Party for the past 170 years. Trump's economic policies, in particular those espoused in his second term, fundamentally reject core free-market principles. Instead of championing free-trade, fiscal restraint, and limited government, his platform relies heavily on protectionist tariffs, massive deficit spending, and government intervention in private enterprise.
By weaponizing across-the-board tariffs, Trump effectively betrayed one of the basic tenants of the conservative philosophy that Republicans have long claimed was a pillar of their party - free trade. For a mature economy like the United States, protectionism makes no sense whatsoever. Economists generally view tariffs as a tax on domestic consumers that distorts the free market rather than allowing it to operate efficiently. Tariffs are a sales tax that inflates prices for consumers. We know from decades of experience that tariffs reduce employment, productivity, and output. Trump loves tariffs partly because companies come begging him for relief, and he can extract more tribute from them. Both the tariffs and the jockeying for special favors ought to be abhorrent to the party that holds itself as the defender of the free market. Trump has consistently made claims that tariffs can build a trade wall around America while also raising trillions of dollars in revenues to replace the income tax. This is a seriously flawed claim. A tariff cannot raise revenues from imports if those goods are no longer being imported. Tariffs can either lock out imports or collect revenues from them, but they cannot do both.
Fiscal conservatism traditionally prioritizes balancing the federal budget, reducing the national debt, and limiting government spending. Under Trump's administration, the U.S. national debt has grown significantly due to a combination of tax cuts and increased spending. Should we be surprised that the self-proscribed "King of Debt" doesn't give a rat's ass about the level of our national debt ($40 trillion), and more importantly, the fact that the government's debt is growing faster than its economy. Interest payments now consume 20% of federal revenues and have surpassed defense spending. The vast majority of politicians promise things during a campaign, and then fail to deliver when elected. It seems that Trump takes that approach to a whole different level. During his 2016 presidential campaign, Trump promised not only to balance the federal budget, but even to pay off the entire national debt. Then, during this first term, he signed legislation and executive orders adding $7.8 trillion more in red ink. Through his first 18 months in office the second time around, he is well on pace to surpass the cumulative deficit levels for his first term. His questionable fiscal policies cannot escape the mathematical reality that deep tax cuts and spending expansions cannot reduce surging budget deficits. Trump has continued his predecessor's economic errors. Either on Trump's watch, or that of his successor, there is an above-average chance of a severe shock to the economic system. Problems will first surface in the sovereign bond market with contagion subsequently spreading to the equities market. As they always do in a crisis, The Fed wll open the spigots and flood the financial system with liquidity. The proverbial can will be kicked down the road. The inevitable reset of the monetary system will be deferred again, buying time, but increasing the severity of the eventual demise of the fiat world.
Trump has steered the Republican Party away from long-standing support of free-market capitalism to a bastardized form of state corporatism that features crony capitalism. Rather than letting the free market dictate business success, Trump has advocated for heavy government involvement. He has repeatedly squeezed or lured corporations into doing his bidding. Eleven companies have given the federal government a stake in their ownership, making the government in some cases their largest shareholder and giving the president leverage over them. Imagine the outrage among Republicans if a Democrat had done that. In the past year, in exchange for an export license needed to sell advanced AI chips to China - a license previously denied on national security grounds - Nvidia secured Trump's approval by agreeing to pay the government 25% of the proceeds. Trump has taken "pay to play" arrangements to a level rarely seen in the executive branch of government.
The majority of business leaders are frustrated by Trump's apparent desire to micromanage the U.S. economy. Trump has called for CEOs who do not support him to be fired. He will stop at nothing to ensure those who cross him are punished, whether it is by their businesses failing or the CEOs being sacked. Trump does not want companies that oppose his rule to succeed. Trump's ever-changing trade policies, whether it be across-the-board tariffs, or the U.S.-Mexico-Canada Agreement (USMCA), is creating a climate of economic uncertainty that will disincentivize business investment. The main value of a trade agreement is that the rules and provisions stay stable long enough for companies to make plans and act on them. Per former Undersecretary of Commerce, Dr. Robert Shapiro - "Every investment is based on an assessment of the likely future demand for whatever you're investing in, and how much it's going to cost to produce it. So there are assumptions about labor costs, material costs and other input costs - and again about demand."
In conclusion, for the most part, Republicans have gone along with the betrayal of conservatism because they relish the power and care more about results than long time, fundamental standards. The jury is still out insofar as determining the efficacy of Trump's economic policies. My concern is that this departure from free-market principles will accelerate an eventual economic crisis. As mentioned previously, problems will start in the sovereign bond market and then contaminate the equities market. Like the 2007-2009 Great Financial Crisis, it will be a global phenomenon. And a nasty one. Unlike the 2007-2009 GFC, I see the current fiat system being replaced by a new monetary system that will take away the printing presses from spendthrift governments.
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