Peter Morici
Trump’s economic choices will breathe new life into stocks — or smother them
Last Updated: Nov. 30, 2024 at 11:02 a.m. ET
First Published: Nov. 26, 2024 at 7:05 a.m. ET
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The security of Taiwan and Europe is paramount if Nvidia and other U.S. high-tech companies are to prosper.
Smart policy choices can boost growth and create historic stock-market gains. President-elect Donald Trump has such an opportunity. He faces tough choices — and his administration’s decisions will determine whether U.S. growth continues to benefit mostly the coastal elites or spreads prosperity throughout the country — with huge gains for ordinary Americans.
Stock- and bond investors will be watching closely. Key domestic areas to address include computer-chip manufacturing, artificial intelligence, and STEM and other career-oriented programs. Internationally, the defense of Taiwan and Europe, and immigration through the U.S. southern border also demand forward-thinking.
For example, Nvidia
, Qualcomm
and other leading U.S. chipmakers subcontract fabrication to Taiwan Semiconductor Manufacturing (TSMC)
. With Chips Act support, TSMC will manufacture some advanced chips in Arizona. However, its ecosystem of engineers and technicians requires that it make the most advanced chips in Taiwan, with equipment solely manufactured by ASML Holding
of The Netherlands.
More: How Nvidia earnings affect your stake in other tech stocks Also read: Qualcomm is moving fast to boost growth and trim its dependence on Apple The security of Taiwan and Europe is paramount if Nvidia and other U.S. high-tech companies are to prosper. Yes, the Europeans should spend more to arm themselves, but some U.S. participation in NATO plus an effective presence in the Middle East and the Indo-Pacific would require increasing U.S. defense spending by 2% of GDP. Except there’s not enough room in the U.S. federal budget for discretionary spending reductions to adequately finance the military. Entitlements including Social Security and veterans’ benefits reflect 60% of federal outlays. Defense, debt service and discretionary spending are 13%, 10% and 17%, respectively. Large cuts in social programs and raising new revenue are needed, instead of simply renewing the Tax Cut and Jobs Act (TCJA) or running much bigger federal deficits. Trump could get some help if he gets reasonable about promised mass deportations and immigration. Since 2016, the U.S. economy has been growing more rapidly—2.5% annually—much more than during the Bush-Obama years and the 1.8% growth rate that the Congressional Budget Office assumed. The growth story is due to the TCJA and U.S. President Joe Biden’s infrastructure and industrial policies, which have boosted spending and investment. Indigenous population growth and regular immigration allowed the economy to add about 80,000 jobs per month. The U.S. unemployment rate fell below 4% in the summer of 2023, yet the economy added more than 195,000 jobs over the next 12 months. The strong growth the U.S. has enjoyed is enabled by irregular immigrants finding jobs. At the same time, artificial intelligence is revolutionizing traditional work. AI agents — specialized programs that can complete customer support and sales development assignments without human supervision — will boost productivity. Spending on AI equipment and services is estimated to soar to about $900 billion in 2027 from $185 billion in 2023, according to Bain & Co. Introducing AI agents into the workplace could increase the pace of U.S. economic growth by perhaps a full percentage point. Many new jobs will be gained and others lost in this new era, but the opportunity beckons to finally raise U.S. GDP growth to 3.5% or 4% a year by retraining displaced workers, recalibrating secondary- and post-secondary education to the emerging AI economy, and getting immigration policy right. An economy growing at 3.5% or 4% instead of 2% would greatly ease the U.S. government’s budget challenges. With economic growth at that level, annual stock market gains would not slump — as currently feared by analysts at Goldman Sachs and Vanguard. Instead, prosperity would spread across the entire economy. Stock gains would be broadly based and well exceed the U.S. market’s 9.1% annualized pace over the past 25 years. But this requires government support to enhance STEM programs, expand Department of Labor sponsored apprenticeships and provide financial assistance to new high school graduates and displaced workers to relocate to programs that best suit them. Many promises get made during campaigns, and Trump needs to rethink his. Eliminating taxes on tips, overtime and Social Security, along with enhanced assistance for long-term care, would bust the federal budget and force the U.S. Federal Reserve to either keep interest rates higher or allow inflation to go through the roof. Large deficits also could cause panic in bond markets and threaten the reserve currency status of the U.S. dollar . A big tariff on China could be phased in over four years to generate about $90 billion a year — far from the $750 billion annually that Trump’s campaign promises would likely cost. But immediately imposing a 60% tariff on Chinese goods, a 10% tariff on other goods and mass deportation of illegal immigrants would cause a deep U.S. recession, derail investments in artificial intelligence and render Trump 2.0 a failure. Read: Trump threatens to impose sweeping new tariffs on Mexico, Canada and China on first day in office On the other hand, skillfully adjusting the TCJA tax cuts and entitlements reform, restoring our military, further directing trade away from China, deporting criminals and cleaning up the more wasteful aspects of Biden’s infrastructure and industrial policies would give Trump quite a legacy. Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist. More: Here’s what Trump’s pick of Scott Bessent for Treasury secretary means for taxes, interest rates and more Plus: Will the Fed ‘weaponize’ the bond market to ‘teach Trump a lesson’?
Promises, promises
