312. Effect of Trump's Win on Inflation, Taxes, Trade & AI | This Week's Economy Ep. 86

What a second Trump term could mean for you.

Hello Friends!

With Donald J. Trump securing the White House again, the economic policies he champions—from tariffs to spending cuts—are back in the spotlight. This week, we dive into Trump’s fiscal and regulatory plans, the Federal Reserve’s recent rate decisions, and critical shifts in state-level policies, from property tax elimination to school choice. Join us as we explore what these moves could mean for economic freedom, prosperity, and innovation in America.

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TRUMP WINS WHITE HOUSE

In the News:

After a contentious election season, Republican Donald J. Trump won the presidency to be the 45th and 47th president, securing enough swing states to reach more than the 270 Electoral College votes needed to defeat Democrat Vice President Kamala Harris. Source: New York Times

My Take:

• Congratulations: Congratulations to President Trump on his victory! Americans seek strong leadership to help steer the country forward and revitalize the economy. This should include more tax reforms and deregulation that were pro-growth in the first term. There is much important work ahead.

• Tariffs are Hidden Tax Hikes: Throughout his campaign and previous term, Trump promoted tariffs to protect American jobs. However, these tariffs often end up functioning as a tax on Americans, driving up the cost of goods and services, especially in an inflationary environment. Tariffs ultimately harm the people they aim to protect by increasing everyday expenses for consumers and businesses.

• A Pro-Growth Path Forward: To build on the success of Trump’s previous tax cuts and deregulation efforts, the administration should focus on reducing government spending, taxes, and regulatory burdens. This approach offers a proven path to prosperity, avoiding the “New Right” policies that mirror outdated progressive approaches. The Trump administration can help create a robust economy that benefits all Americans by championing pro-growth, pro-market policies.

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FED’S CONTROL OF BOND MARKET

In the News:

The Federal Reserve cut interest rates again last week. The 10-year Treasury yield has surged by approximately 70 basis points since the Federal Reserve’s recent rate cut, sparking concerns that the central bank may be losing control over the long end of the yield curve. Source: Reuters.

My Take:

• Premature Rate Cut: The Fed’s decision to lower the federal funds rate by another 25 basis points, bringing it to a range of 4.5 to 4.75 percent, came despite inflation exceeding its 2 percent target. This loosening of monetary policy may have been premature, sending mixed signals to the market.

• High-Yield Environment Reflects Debt Concerns: Elevated yields on long-term Treasury bonds signal market apprehension about rising federal debt and deficits. These fiscal imbalances place additional pressure on the Fed, casting doubt on its ability to manage interest rates amid high government spending.

• Fiscal Strains Create Monetary Policy Challenges: Mounting fiscal challenges risks pulling the Fed’s tools in competing directions, potentially increasing volatility in financial markets and complicating efforts to stabilize inflation.

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ELIMINATING PROPERTY TAXES

In the News:

North Dakota voters rejected Measure 4, a ballot initiative that would have eliminated property taxes statewide. If passed, North Dakota would have become the first U.S. state without property taxes, potentially setting a new standard for tax reform across the nation. Source: MarketWatch

My Take:

• The Potential of Measure 4: While the measure ultimately failed, its bold approach sparked a critical discussion on property tax reform and challenged the idea that property taxes must be a permanent part of our tax system. This moment demonstrated the public’s growing interest in rethinking traditional tax structures.

• Property Taxes as a Burden on Homeownership: Property taxes impose a recurring financial burden on homeowners, functioning much like an annual wealth tax that increases based on local government assessments and rates. Even after a mortgage is paid, property taxes make homeowners permanent “renters” of their property. This tax is particularly burdensome for retirees, fixed-income earners, and families struggling to keep pace with rising housing costs.

• Looking Ahead: Lessons for Future Reform: Although ambitious, Measure 4 lacked a clear plan to replace the significant revenue property taxes generate, risking budget shortfalls or prompting alternative tax hikes. For states considering similar reforms, crafting a strategic plan that includes spending controls and sustainable revenue sources is essential. By securing a solid fiscal foundation, other states can pursue bold tax reform to strengthen their economies while avoiding potential financial instability.

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TEXAS POISED FOR SCHOOL CHOICE WIN

In the News:

Following a successful election day for Texas Republicans, Governor Abbott has expressed confidence that there are enough votes to pass school choice legislation in the upcoming legislative session. Source: Texas Tribune

My Take:

• Empowering Texas Families: Texas families have long awaited the chance to choose the best educational path for their children. Proposed school choice legislation would open access to quality education for all children, regardless of socioeconomic background. It would allow families to use universal education savings accounts to select schools that align with their needs and values.

• Focusing on Student Outcomes, Not Bureaucracy: Public education should prioritize student outcomes over expanding administrative roles. Universal school choice would introduce healthy competition that emphasizes improving educational results for students, ensuring that resources are directed where they matter most.

• A Promising Step Forward: It’s inspiring to see Texas on the verge of passing school choice legislation, which has been shown to boost student performance, graduation rates, and family satisfaction in other states. By providing families with universal savings accounts, Texas can give every child access to high-quality education, fostering a brighter future.

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FUTURE OF AI REGULATION

In the News:

Post-election predictions suggest a light regulatory approach toward AI from the Trump administration, though some states may take the initiative to introduce their laws. Source: TechCrunch

My Take:

• Balancing Economic Growth and Regulation: While ensuring AI safety is crucial, evaluating how potential regulations could impact economic growth is essential. Excessive regulation—whether from state or federal governments—risks stifling the innovation that drives economic progress, potentially weakening the U.S.’s competitive position in this rapidly evolving sector.

• Trade Policy and AI Development: Trump’s trade policies, including tariffs, could raise costs on essential components for AI development, straining budgets for R&D in the AI field. Increased costs may limit the resources available to businesses for innovation, potentially slowing advancements in AI technology.

• Ensuring Global Competitiveness: To maintain leadership in AI, the U.S. must foster an environment that supports rapid innovation. Pausing progress or restricting access to necessary technology through tariffs hinders our position against global players like China and the UAE, where AI development is advancing without similar regulatory constraints.

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Thanks for joining me in this episode of "This Week's Economy." For more insights, visit vanceginn.com and get a paid subscription to my Substack newsletter at vanceginn.substack.com today so you receive these insights in your inbox. God bless you, and let people prosper.