Economic Consequences of Trump's Proposed Policies

While Donald Trump has been short on economic policy details during his campaign, he has nevertheless promised substantial changes in many areas, including both fiscal and trade policies. Their consequences on the US economy, however, are likely to work in opposite directions. In addition, the government is required to balance its budget in the long run through distorting taxes that will lead ultimately to losses in economic efficiency. Results are developed through the application of KPMG Global which has been extended to include a public sector account that links government expenditures to tax revenues. The core model of KPMG Global is based on the 2014 world economy from the GTAP 10 database and the government budget in each region is calibrated to empirical evidence so that it reflects the balance (either deficit or surplus) reported in international statistics. Preliminary simulation results show that the economic consequences on the US economy of both tax cuts and rising spending along with tariff barriers on manufactured imports are negative with a 0.8 per cent decrease in real GDP in the long run, as compared to a situation of business-as-usual. As expected, fiscal policy alone has a positive impact on GDP (+0.5%) and trade policy alone has a negative effect on GDP (-1.3%).