It’s ‘Maganomics’: Trump’s brash economic strategy is likely to end in crash or crisis | Jonathan Portes

6 hours ago 4

What connects Donald Trump’s approach to trade, tax and government spending? Is there a Trumpian theory of economics – Maganomics? Trump, like most politicians, would doubtless reject any claim that he was following a particular ideological blueprint, but then, as John Maynard Keynes said: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

It’s certainly difficult to attribute Trump’s policies to the intellectual influence of any one strand in economic thinking. The most obvious frame is the dual one identified by Harvard economist Dani Rodrik, who describes it as a combination of economic nationalism and the techno-right. The former, represented by long-term Trump confidantes Peter Navarro and Steve Bannon, wants to rebuild America’s traditional industrial strength behind tariff walls while deporting as many immigrants as possible; the latter, represented of course by Elon Musk, to engineer a great leap forward into an AI-enabled libertarian future.

This divide is instantly recognisable to British readers. Among Brexiters, there was a visible tension between those who saw Brexit as a way to reverse the perceived adverse impacts of globalisation by allowing the UK to set more restrictive migration and trade policies, and those who saw it as a route to deregulation and a smaller state (the so-called – albeit misleadingly – “Singapore-on-Thames” model).

But the simple transatlantic analogy misses the uniquely American characteristics of the various components of Trumpism. The anti-immigrant nativism is a throwback to the “Know Nothings” of the mid-19th century, while Trump is a professed admirer of William McKinley, who introduced a massive rise in US tariffs in 1890.

Meanwhile, Musk’s vision is essentially that of Ayn Rand – that human progress and prosperity depends on the selfish actions of heroic individuals, and the sole role of government is to protect the (economic) freedoms of such individuals. Certainly, Musk’s slash-and-burn approach to “re-engineering” government, and his dismantling of institutions, are pure Rand. They have nothing in common with the Singapore model, which relies on meritocracy and highly paid civil servants for delivery.

Moreover, there is a third element, which is the use of state power to benefit Trump and his supporters. This hardly qualifies as an economic ideology, but is too big to be ignored. For example, there is Musk’s determination to ensure that the Federal Aviation Administration hands lucrative contracts to his Starlink company. Normally, economists might dismiss this sort of thing as macro-economically insignificant – but Trump’s proposal of a sizeable strategic crypto reserve would be anything but; it is difficult to see this as anything but a gigantic wealth transfer from holders of dollar assets in the US and abroad to (some) crypto investors.

The inherent contradictions between these different perspectives are obvious, philosophically and in practice. For example, when it comes to immigration, the nativists and the techno-futurists can agree that irregular migrants should be deported – but, as Anand Menon and I have written, the open white nationalism of the former means that they also strongly favour reducing legal migration, while the latter rely heavily on highly skilled south and east Asian immigrants. Of course, a similar tension over what “controlled immigration” actually means was one of the factors leading to the disintegration of the Brexit coalition in the UK.

Similarly, very large tax cuts targeted on the rich, combined with import tariffs that hit lower and middle income households, will directly hurt many of those who thought they were voting to improve their own living standards.

But while these factors may over time undermine its political base, it would be a mistake to assume that Trumpism as a governing force will necessarily collapse under the weight of these contradictions in the short term. On some issues, such as the gutting of USAid and science funding, there is ideological alignment. Describing the sacking of the US’s most senior military officer (who was black) as a blow against “DEI” (diversity, equity and inclusion) is overt in its racism; but it also makes clear who is in charge, and what will happen to any public servant, no matter how senior or how distinguished, who gets in the way.

While tariffs are clearly directly contrary to libertarian ideology and the business interests of many of Trump’s backers, the combination of fear (of politically motivated retaliation) and greed (for tax cuts) has muted open dissent so far. There is little or no sign that elected Republican officials will push back either on principled or self-interested grounds. And much of Trump’s rhetoric is performative rather than directly connected to substantive policy. So, at least for the immediate future, Trump may succeed in riding all three horses at once.

Rather than slowly unpicking itself, it may therefore take a crisis to prise the coalition apart. It’s not hard to see how this could happen. The US’s fiscal trajectory is already unsustainable. Large tax cuts, combined with the deliberate hobbling of the IRS’s ability to collect taxes, and the fact that Musk’s “cuts” will deliver little or nothing in the way of concrete spending reductions, will test markets’ normally impregnable confidence in the status of Treasury bonds as the ultimate risk-free asset. Meanwhile, while impossible to quantify, the systematic dismantling of financial regulation must make some sort of highly disruptive event in financial markets considerably more likely. Maganomics is not just inconsistent but dangerous – and will probably end not with a whimper but a bang.