Trump seems to be shelving populist economic stances

US president Donald Trump made three startling economic policy reversals this week, stepping away from pledges he made as a candidate and even policies he supported only days ago.

The shifts confounded many of Trump’s supporters and suggested that the moderate financiers he brought from Wall Street are eclipsing the White House populist wing led by Stephen Bannon, the political strategist who is increasingly being sidelined by the president.

In a series of interviews, Trump said he no longer wanted to label China a currency manipulator – a week after telling the Financial Times that the Chinese were the "world champions" of currency manipulation.

In an interview with the Wall Street Journal, the president said he no longer wanted to eliminate the Export-Import Bank.

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And he said that he might consider reappointing Janet Yellen as chairwoman of the Federal Reserve when her term ends next year.

Yet before the election, he regularly denounced China and said that Yellen should be “ashamed” of herself because of what he said was her political bias.

Mainstream

Trump’s latest pronouncements suggest he is moving toward a more mainstream economic approach, although on other issues that he discussed on Wednesday, such as a tax overhaul and healthcare, his policy and strategy appeared muddled.

Trump asserted in a Twitter post Wednesday night that his agenda remained on track. “One by one, we are keeping our promises – on the border, on energy, on jobs, on regulations. Big changes are happening.”

Trump began the day with an interview with Fox Business Network in which he backed away from the so-called border-adjustment tax favoured by House of Representatives speaker Paul Ryan and House Republicans. He also backtracked on his claim last month that he was moving on from his plan to repeal the Affordable Care Act to focus on taxes. Now he is again putting healthcare first.

In his interview with the Wall Street Journal, Trump revealed his softer approach to China – the about-face coming less than a week after meeting with China's president, Xi Jinping – and made another reversal on healthcare. He said the government would not continue to pay subsidies to health insurers under Obamacare only days after the administration said it would. Trump said the threat to withhold subsidies was a way to force Democrats to negotiate with him over the future of the Affordable Care Act.

In the Journal interview, Trump said "Democrats will start calling me and negotiating" because they want to avoid any interruption of the "cost-sharing" subsidies, which reduce out-of-pocket costs for seven million low-income people.

On Monday, the department of health and human services had issued a statement saying “the cost-sharing subsidies will be funded” while a federal appeals court weighed the legality of the payments.

Letter

Trump’s remarks coincided with a letter in which doctors, hospitals, insurance companies and employers pleaded with him and with Congress to help stabilise insurance markets by authorising a continuation of the subsidies. “Time is short and action is needed,” said the letter, sent on Wednesday by eight groups including the US Chamber of Commerce, the Blue Cross and Blue Shield Association, America’s Health Insurance Plans, the American Medical Association and the American Hospital Association.

The president’s comments on Wednesday recalled his reaction when Republican leaders pulled a Bill to repeal president Barack Obama’s healthcare law from the House floor last month. Trump predicted then that “Democrats will come to us” in an effort to save the law, which he said was imploding. They did not.

To make the muddy waters even murkier, Trump took his plans to rewrite the tax code into uncharted territory when he threw cold water on the border adjustment tax that is the linchpin of the tax reform plan. After months of waffling on that tax, he instead called for a new “reciprocal tax” that appears to be a different kind of levy on imports.

“I don’t like the word adjustment, because our country gets taken advantage of, to use a nice term, by every other country in the world,” Trump said in the Fox Business interview. “So when I hear border adjustment, adjustment means we lose.”

He added: “I love the idea of reciprocal. You can call it a reciprocal or a matching tax or a mirror tax.”

Confusion

The notion left tax experts scratching their heads. “I’m genuinely confused,” said Itai Grinberg, a tax expert at Georgetown University’s law school. “If one imposes a tax that varies based on the country of origin of the good or service, then what one may in substance have is something akin to a country-specific tariff regime.”

What is clear is that all of the uncertainty surrounding the White House’s economic plans is causing frustration among some of Trump’s supporters, including those who helped get him elected. Larry Kudlow, the economist who advised Trump when he was a candidate, panned Trump’s reciprocal tax idea as a nonsensical approach that would essentially raise taxes.

He suggested that the scattershot approach to economic policy coming from the White House was probably because of poor leadership at the national economic council, which is led by Gary Cohn, and the diminished role of the treasury department, which is steered by secretary Steven Mnuchin.

“It’s complete chaos,” Kudlow said. “It sows confusion and people lose confidence. The process is broken.”

Last Friday, Trump named Kevin Hassett, a conservative pro-immigration economist, to lead his council of economic advisers. Ardent supporters worried it was an abandonment of the tough stance he took on the issue during the campaign. Trump shared few details about how a reciprocal tax would work. It is unclear if, in his thinking, the US would match tariffs that countries levy on certain American products against other products that those countries produce or if he wants to effectively have a value-added tax with different rates for goods and services from each country.

Either way, economists warned that economic effects could be calamitous.

“Any economist will tell you that tariffs are often, if not always, self-defeating,” said Michael Graetz, a tax law professor at Columbia University. “It doesn’t appear to be a sound idea as a matter of tax policy.”

Howard Gleckman, a fellow at the Tax Policy Centre, said: “It looks like Trump is not happy with the border adjustment tax idea for whatever reason and he’s looking for an alternative.”

With more changes apparently in store, Trump’s budget director Mick Mulvaney added an additional major reversal on his behalf: he said on CNBC on Wednesday that the president’s campaign promise to eliminate the national debt was “hyperbole”. – (Copyright New York Times Limited 2017)