The Four Silver Bullets of Trumpnomics

Peter Navarro

Politics, United States

The Republican front-runner has a plan for America to eliminate its massive trade deficits.

Ronald Reagan’s “supply side” genius was to recognize America could boost its growth and create millions of jobs not by increasing government spending but rather by reducing taxes and regulation. Donald Trump’s “balanced trade” epiphany is that the best way to make America great again is to eliminate the massive trade deficits now decimating the U.S. manufacturing base—and bleeding American workers dry.

The primacy of Trumpnomics and its balanced trade approach begins with this basic iron law: The growth of any nation’s gross domestic product (GDP) is propelled by only four drivers—consumption, business investment, government spending and “net exports.”

The key term for Trumpnomics in this GDP equation is “net exports.” This is defined as the exports America sells to the world minus its imports from countries like China, Mexico and Japan. 

Based on simple math, it is axiomatic that when a nation like the United States runs massive and chronic trade deficits, the net export term in the GDP growth equation is a big negative. That’s exactly why trade deficits subtract directly from GDP growth.

To see how such Trumpnomics math works, just consider America’s real-inflation adjusted GDP growth rate of 2.4 percent in 2015. Following the GDP equation, consumption contributed about 2 percent to this growth rate and business investment added close to another 1 percent—pretty typical numbers for any given year. 

In addition, government spending added an additional 0.13 percent to the GDP growth. At the same time, exports added a relatively meager and unusual 0.15 percent; this was because of a combination of a stronger dollar and weak demand for U.S. exports in places like a stagnating Europe.