Glenn Hubbard explores how President Trump can address real economic concerns without a counterproductive tariff policy.
[F]or all the benefits that accrue to financiers and consumers, a stronger dollar makes it harder for US industry to compete globally, to the detriment of industrial employment, incomes, and communities. …
… Trump’s economic agenda recognizes the adverse effects of globalization and technological advances on certain parts of American society, in contrast to economists’ emphasis on averages and overall benefits. But Trump misses the simple insight that there are more—and better—ways to help US manufacturing and its left-behind workers than through a weaker dollar alone. He has several policy instruments at his disposal that can address these voters’ concerns and help achieve his administration’s goals while preserving support for the dollar’s reserve-currency role.
For starters, the administration can support a robust industrial sector by increasing public funding for basic research, which advances technology, and a network of applied research centers to diffuse advances in industrial processes. Streamlining regulatory approvals for construction and electricity transmission will also be crucial.
Second, to help workers develop new skills, the administration could channel more resources toward community colleges, while a substantially expanded Earned Income Tax Credit would increase rewards for work. Lastly, more targeted place-based aid could help those areas facing severe disruptions from globalization and technology.
By focusing on the problems associated with a stronger dollar, Trump and his economic advisers have asked an old question in a new way. Their mistake is insisting on answering it with the wrong instrument. Weakening the dollar, including by eroding policy predictability and the economic institutions underpinning its hegemony, will exacerbate the affordability pressures many Americans face and harm the country’s fiscal position. The question now is whether the administration will see the need for a policy pivot in time to affect the midterms.
