The Economic Implications of Transitioning to Renewable Energy
While the whole of the population rarely experiences the full effects of any one presidential policy, that’s not true of economic policy. President-elect Donald Trump’s campaign hinged on a number of economic policies that could have global, national, and personal effects. If his second administration goes like his first, it will offer a business-friendly climate and some policies that aim to put more money in each American’s pocket.
Defining the Economy
Despite its opportunity, the cute television insurance commercial doesn’t define the economy, so let’s start there. According to Investopedia, the term economy refers to the sum of production, sale or exchange, distribution, and consumption-related activities by people within a geographically defined area. That means economies exist inside other economies.
The entire world and all of its people, production, and trade create the global economy, while each nation has its own economy. The U.S. economy refers to the total production, distribution, consumer purchasing, and use of items within its borders. The state, county, and town you live in each have their own economy, too.
Presidential Economic Policies
Each U.S. President works with the U.S. Congress to enact economic policies that they think will improve the country. Some presidents focus on big business, others on small businesses, while some presidents have tried to jump-start economic growth to create jobs and help lower the unemployment rate.
That can result in each household earning more money, which improves the household’s economy or personal economy. President-elect Trump’s economic platform includes the following:
• Import tariffs
• Deportation of illegal immigrants
• Limiting immigration
• Corporate tax cuts
• Personal tax cuts
• Government deregulation.
Let’s look at each of these in detail and how it could affect the economy and each American citizen.
Tax Cuts
During his first term in office, President-elect Trump managed to get some of his desired business tax cuts passed in Congress. During his second term, he wants to extend parts of the 2017 tax cut package that would otherwise expire in 2025.
He has stated that he also wants to reduce taxes on individuals. In both cases, the desired tax cuts would help lower income taxes for lower- and middle-income individuals. President-elect Trump wants to exempt tipped income from taxation. That tax cut would reduce the taxes owed by waitresses, waiters, bellhops, cabbies, Uber and Lyft drivers, and many others in the service industry and gig economy. His other proposed personal tax cut would make Social Security benefits exempt from federal income tax.
Import Tariffs
The President-elect has proposed import tariffs that would add 10% to 20% to the cost of all imported goods. An import tariff refers to a tax added to an item manufactured in another country and then exported. According to NPR, a 10% tariff would increase inflation by approximately 0.8 percentage points.
The average American would notice this tax because manufacturers would raise prices to balance their added costs. That means items made overseas that people buy from stores like Temu and SheIn would cost more, and so would foreign-made vehicles. Import tariffs encourage people to buy American goods by putting the cost of imports on par with domestically produced items.
Tariffs apply to raw materials, too. That could result in some American businesses choosing to source raw materials locally or regionally. Indirectly, that can help create jobs since it increases demand for domestic raw materials. It can also increase costs because some raw materials aren’t available domestically and because labor costs more in the U.S.
Immigration Policies
The President-elect has stated he will order the mass deportation of illegal immigrants. This stance mirrors his policy from his first term. Illegal immigrants do provide a cheap source of labor in some areas of the country, notably domestic service and day labor in agriculture. Deporting those here illegally opens their jobs to legal residents.
President-elect Trump plans to limit legal immigration. This stance also mirrors his first term in office, so it doesn’t introduce anything new. Limiting legal immigration results in fewer foreign-born individuals hired by U.S. businesses. That action opens those jobs to American citizens.
Federal Reserve Appointees
During his first term in office, the President-elect appointed Jerome Powell as Chairman of The Federal Reserve, the central bank of the United States, and Micheal Barr as The Federal Reserve bank regulator. Both of their terms expire in 2026, so President-elect Trump will appoint their replacements, too.
The Federal Reserve sets interest rates in the country. When interest rates drop, it encourages people to borrow money. Typically, they use these loans for major purchases, such as cars or houses. As long as they earn enough money to pay back the loans, their purchases help spur the economy.
During his first term, President-elect Trump encourages Reserve Chairman Jerome Powell to cut interest rates. The country’s central bank typically avoids lower interest rates during times of inflation. If the President-elect’s policies result in lower inflation, expect the Reserve to lower interest rates. If the policy changes adversely affect inflation, expect the central bank to maintain the interest rate or raise it.
Deregulation
The President-elect’s deregulation platform includes reversing limitations on fossil fuel extractions, including coal mining and oil and gas drilling, according to Thomson Reuters. He also wants to cancel the unspent funds in the Inflation Reduction Act that subsidize wind energy, solar power, and electric vehicles. Both actions would require Congressional approval.
The average American would notice these deregulation changes when buying a vehicle or paying their electric bill. Without the subsidies, the cost of electric vehicles would increase. It would become more expensive to install a solar panel system or a wind energy solution.
Overall Policy Effects
Right now, everything remains a supposition. Every President-elect has a platform and goals. How well the person works with Congress while serving as president decides which policies get passed through Congress. According to CNBC, if all parts of President-elect Trump’s economic platform go into effect, it could result in the country’s government needing to borrow more money, thus increasing the national debt.
When modeled mathematically, the proposed tax cuts reduce the government’s income and the tariffs don’t bring in enough money to balance out the rest of the economic plan. How things turn out depends on which parts of the plan pass Congress and the actions of the President-elect’s appointees.