Trump’s tax overhaul will impact the future of broader U.S. economy and especially technology sector. In a recent blog, I pointed out that Trumponomics can be compared to Reaganomics. Just as Reaganomics led to a growth of stock market followed by a major crash in 1987, I forecasted that Trumponomics will also lead to near term stock market growth, followed by an inevitable crash.
If you look at what has happened in the wake of Trump’s tax overhaul, the huge tax breaks were used by corporations to buy back their stocks. Those extra tax savings did not help in growth of investments into the economy. The share buybacks in 2018 have averaged $4.8 billion a day, double the pace for the same period a year ago, before Congress slashed the corporate tax rate in December, according to TrimTabs. According to JP Morgan, these buy backs would total a record $800 billion this year alone. By most accounts, the stock market will continue to do better for the rest of this year.
I don’t believe that will continue. The fundamentals of macroeconomic growth are absent in Trumponomics, which I believe will lead to a major crash by end of 2018 or in early 2019. Last week, Trump’s chief economic advisor, Gary Cohn, resigned after Trump imposed tariffs on steel and aluminum imports. I maintain that the United States needs fair trade over free trade to reduce its trade deficits. For that reason, I support President Trump’s tariff to protect American jobs if there cannot be a fair trade negotiated between the U.S. and its trading partners.
However, I believe that other remedies may answer U.S. economic challenges as well or better than tariffs. I propose giving more dollars to China for a fewer yuan to make American exports artificially cheaper for Chinese consumers. In this way, trade deficits with China can be reduced not just on aluminum and steel but also other products, including electronic goods, exported to China. This could potentially help reduce U.S. trade deficits by increasing exports.
Regardless of what Trump does with U.S. trade policies or U.S. tax policies, the fundamental reform that needs to happen is of the w.r.t. monetary policy of the U.S. Federal Reserve. In a recent Interview with DP TV, I answered questions about what to expect in the near- and long- term future of U.S. economy and its tech sector. The video can be viewed below.
Recently on the Wealth Money Radio show, I talked about some of these ideas within the framework of several famous economists. In the technology sector, the French economist Jean Baptiste Say has been particularly influential. Historically, the progress of Moore’s law in U.S. economy has been driven by Say’s Law of Supply Side Economics. Today, Say’s law is no longer valid. Instead, a Wage-Productivity Model provides a better and more sustainable progress for the Technological sector of US and global economy.
President Trump's decision to block the merger deal between Broadcomm and Qualcomm on grounds of national security is indeed a first step towards revival of the U.S. semiconductor industry. It also works to rectify the flaws in U.S. macroeconomic policies which have resulted into a crisis for the U.S. semiconductor Industry and overall U.S. economy. However, President Trump’s desire to have implement a second phase of tax cuts is likely to end disastrously. Keep in mind that President Ronald Reagan eventually became America’s greatest socialist president for his efforts to redistribute wealth from the middle class to the opulent.
Unless Trumponomics ensures that the U.S. federal government follows a free market monetary policy so that wages keep pace with productivity, the U.S. economy is headed for a crisis as the government starts hiking benchmark interest rates. Rising interest rates will increase the U.S. dollar and hamper exports. The end result will be a stock market crash next year. Only time will tell whether my forecasts will come true and whether Trump’s will fuel a new trade war in the global economy.