Trump may adjust economic proposals to avoid slowdown

By Gulbin Yıldırım and Ovunc Kutlu

NEW YORK

President-elect Donald Trump may have to adjust his positions on trade to avoid a slowdown in the American economy, an expert told Anadolu Agency.

Trump had proposed withdrawing from the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and, stated his intention to renegotiate the North American Free Trade Agreement (NAFTA).

He also said he would impose tariffs on imports from China and Mexico, 45 percent and 35 percent, respectively, which could adversely affect the American manufacturing sector.

"His powers to restrict trade, investment and all kinds of commerce with other nations are enormous. He can do anything," said lawyer and economist Gary Hufbauer.

With Republicans retaining control of Congress, Trump can realize those plans, but they could have a negative impact on American growth.

"I think his position can change on trade,” Hufbauer said. “He would not want to do anything. Because if he does take very aggressive steps, like the sort of advertised during the campaign, [it] will get retaliation and that would mean a trade war.”

The senior fellow at the Peterson Institute for International Economics believes such retaliation could trigger financial instability, losses on the stock market and lead to a weaker dollar.

"That cannot be good for his presidency. So, I think ... he would try to find a way to tune it, so he does not get us into a big trade war," he said.

Domestically, a plan to increase spending by $1 trillion on infrastructure, which Trump said would create 13 million new jobs, is viewed positively, even by Democrats.

It remains to be seen if his plans to limit corporate tax to 15 percent, from 35 percent, and lower tax levels to fewer brackets for individual tax payers, will be implemented. American firms are expected to weigh the implications of his tax reform proposals.

“It is possible that some companies will hold off investments until they learn the shape of the new tax code and figure out how to play it to their best advantage," said Carl B. Weinberg, founder and chief economist of High Frequency Economics.

"It could be a drag on growth," he warned.

Trump's tax reforms "would reduce federal revenues by $9.5 trillion over its first decade," according to an independent analysis by the Tax Policy Center -- a joint venture between the Washington-based Urban Institute and Brookings Institution.

Hufbauer, however, believes tax reforms could be adopted by the middle of next year.

“The Congress is on his side. I think we will get a pretty major tax bill maybe not in the first 100 days but surely in first 200 days, by the next summer or maybe sooner," he said.

Moody's Analytics’ chief economist said he projects the U.S. economy will grow 2 percent, instead of 1.75 percent.

“The uncertainty created by this shocking vote will cause businesses to be more cautious in their hiring and investment," Mark Zandi said.

Trump's election also may lead to the Federal Reserve holding off on raising interest rates because of uncertainties about the economy and the new government's future policies.

"If Fed officials were meeting today, they would not be raising rates," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics.

"How should one forecast the economy knowing that all fiscal policies of the government will change soon with 100 percent probability? If it does not have a forecast, how can the FOMC set monetary conditions to achieve its objectives?," he said referring to the rate-setting committee at the Fed.

O'Sullivan added that the election result probably means just a single four-year term for Janet Yellen as the head of the central bank.

During his campaign, Trump said the Fed's low-rate policy has created a "false economy" and Yellen "should be ashamed" of keeping rates low.

"We do not expect her to resign and we don’t expect the new president to try to force her out early," O'Sullivan said.

Yellen's term ends in February 2018. The Fed's next meeting regarding an interest rate decision will be held next month.