Reviving the American economy and bringing back jobs was one of the biggest planks of Donald Trump’s campaign. His poll rhetoric blamed the previous policy regime for problems in the US economy. The Trump era has seen some drastic departures from earlier times. He has aggressively imposed tariffs on US imports, especially those from China in the hope of reviving domestic manufacturing and employment. He also gave tax cuts which benefited the rich and large corporations disproportionately. The corporate tax rate was cut by 14 percentage points in 2017. The US has also shown signs that it is increasingly reluctant to bear the economic burden of military alliances such as NATO, a move that will save fiscal resources and allow these to be spent in the domestic economy.There has been some improvement in economic activity levels under President Trump. International Monetary Fund figures and projections show that real GDP growth in the US is expected to remain above the 2% mark for three consecutive years (2017, 2018 and 2019) for the first time since the 2008 crisis. Ironical as it may sound, this growth revival has created the biggest economic policy conundrum for President Trump. With economic activity picking up, the Federal Reserve has started winding up its quantitative easing policy. Interest rates have been steadily increasing which are bound to increase borrowing cost for businesses. The rate hike cycle has also spooked stock markets, as higher rates will attract some of the capital away from equities.President Trump has made his displeasure public in his characteristic style, terming the Federal Reserve Chairman Jerome Powell as the biggest problem for the US economy. Given the autonomy the Fed enjoys there is not much the Trump administration can do about these rate hikes. It would be interesting to see whether the White House tries to do something to curb the Fed’s or its Chairman’s autonomy in the near future. However, there is a larger political economy message to be drawn from the Trump-Powell skirmish. Keeping both finance capital and domestic productive capital happy in the long-term while maintaining the sanctity of institutional structures in a modern capitalist economy like the US is a difficult, almost impossible, task. The leaders of the pre-crisis Washington Consensus era understood this. Post-crisis populists like Mr Trump might have got a long rope on this count due to quantitative easing. This honeymoon period is fast getting over.


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