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Trump is threatening to wreck capitalism, not fix it

Rick Newman
Senior Columnist

During Donald Trump’s first week as president, Yahoo Finance mustered some optimism about his determination to create jobs. If Trump can stay focused on the economy and not get sidetracked, we predicted, he might actually do some good for struggling American workers.

Well, so much for that. Trump has moved on from jobs and is now focused on a grandiose border wall, a ban on immigrants, a new and unproved health-reform law, and taxes on imports to punish Mexico for existing. Trump could still come to his senses and refocus on the issue Americans say is most important—the economy, duh—but he seems more likely to lose interest and keep chasing whatever lands him in the headlines.

In just the last few days, Trump has rolled out more ideas that would harm the economy than help it. Begin with immigration. Trump has fulfilled a campaign promise and imposed his version of “extreme vetting” of immigrants, by slashing the number of refugees allowed into the country and banning migrants from 7 predominantly-Muslim nations. He may also cut the number of foreign workers allowed into the United States on various types of work visas. This is supposed to be for national-security reasons, but it has big economic implications as well.

The US actually needs more immigrants, not fewer, in order to grow faster. By limiting immigrants, Trump is making his goal of 4% economic growth that much harder. That’s because of slowing population growth, as this chart shows:

Some people think slower population growth leaves fewer people to claim a fixed amount of prosperity, making everybody better off. But that’s not how it works. In reality, a faster-growing population generates more economic activity that boosts growth and employment. That’s one reason the baby-boom generation enjoyed so much prosperity. A slower-growing population means lower growth and less wealth to go around. With the baby boomers aging and the US birth rate declining, immigrants are the most obvious source of population growth. Unless Trump wants to tell Americans to have a lot more babies.

Immigrants are key to economic growth

Immigrants are also more entrepreneurial than native-born Americans: They start businesses at nearly twice the rate as people born here. Latinos are the most entrepreneurial ethnic group in America, according to data from the nonprofit Kauffman Foundation, followed by Asians, whites and blacks. These can be high-tech businesses or corner delis, but whatever they are, new businesses account for a lot of job growth in America, while big businesses mostly hold steady on employment. Entrepreneurs are crucial to growth, and immigrants are the most active entrepreneurs.

Trump has never acknowledged any of this. Instead, he stokes fear of outsiders by claiming they take American jobs and pose an outsize terrorist risk. Less than a month into office, Trump’s actions on immigration have already triggered resistance from big companies such as Alphabet (GOOGL, GOOG), Apple (AAPL), Starbucks (SBUX) and Ford (F), which would otherwise prefer to stay continents away from Trump’s self-generated controversies. Their willingness to speak out indicates just how damaging Trump’s moves could be.

Trump’s oft-threatened “border tax” is another cloud on the economy. Trump has now suggested a 20% tax on all imports from Mexico—not because this would stimulate hiring, but because Trump has to come up with some way to offload the cost of a border wall that ranks low on Americans’ list of priorities. (Reminder: it’s the economy.) Getting Mexico to pay for a border wall was a Trump campaign promise, so he needs to shoehorn it into his first 100 days somehow.

A 20% border tax would be a tax hike on Mexican imports totaling $60 billion or so, based on current import levels. Trump backpedaled from this idea a bit, saying it would have to be part of a big tax-reform package that also contained better, more thoughtful policies. Still, import tariffs don’t usually get paid by the exporting country. They get passed along to consumers who buy the now-more-expensive stuff being imported. That’s you and me. So put a few extra bucks aside if you’re planning to buy a car, TV or washing machine any time soon.

There are other proposals in Trump’s economic agenda that could turn out to be better, such as an overdue cut in the corporate tax rate and a careful pruning of old, outdated regulations. But Trump is showing a penchant for undermining good ideas with lousy and unnecessary ones. He vows to make America great again, but he never said he’d have to wreck a bunch of things first. And that’s not what voters asked for. All together, now: IT’S THE ECONOMY, STU ….

Send confidential tips and story ideas: rickjnewman@yahoo.com

Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.