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The economy may make Donald Trump a one-term president

As it turned out, those concerns were justified. In 1990, two years after a successful campaign based in part on a commitment to fight Congress’s attempts to raise taxes, Bush faced a rising deficit and a Congress reluctant to cut domestic spending. He caved. In June he announced that he was willing to accept a budget that not only cut defense spending but also included tax increases.

The final package included increases in both income and payroll taxes and went into effect in 1991. In the next year’s campaign, Bush had to deal with rising unemployment and withering criticism in both the primary and the general election over his decision to go back on his pledge.

Trump’s situation is not exactly analogous, of course. But his fate could be same. In his 2016 campaign, Trump promised that nearly every American would see a tax cut. He also pledged to renegotiate America’s “horrible trade deals” and reinvigorate US manufacturing.

When those negotiations failed and a trade war broke out, Trump assured Americans that trade wars were good and easy to win.

That hasn’t exactly worked out. The trade war has been raging for nearly 18 months, the trade deficit continues to increase and manufacturing growth is beginning to slump. Meanwhile, the White House continues to assure Americans that the trade war is only temporary.

President-elect George H. W. Bush during a rally on November 9, 1988.

President-elect George H. W. Bush during a rally on November 9, 1988.Credit:AP

The reality looks different: Every bit of good news is soon undermined by a stumble. Tariffs are still rising, and the trade war is taking an increasing toll on the broader economy.

So far the trade war’s effect has been felt primarily in business investment. Analysis from JP Morgan Chase, however, suggests that consumers will soon be feeling the pinch as well.

If fully implemented, this next phase of Trump’s tariffs will cost the average household up to $US1,795 ($2,667) per year – $US495 more than the bank’s estimate of the average increase in disposable income from tax reform. (The biggest tax cuts in the 2017 law were on the corporate side; they weren’t paid out to any actual humans.)

If consumer spending starts to slip, there won’t be much left propping up economic growth. This combination of weak growth, a rising tax burden and broken promises echoes the 1992 election. In addition, Trump is already accumulating primary challengers who will no doubt criticise him for his failure to deliver. When the Democrats pile on, it will be that much harder for the president to make his case for re-election.

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In tone and substance, Donald Trump and George H.W. Bush are nearly polar opposites. In terms of their economic and political circumstances, however, they are eerily similar – in a way that should raise some doubts about Trump’s chances of re-election.

Karl W. Smith is a former assistant professor of economics at the University of North Carolina’s school of government and founder of the blog Modeled Behavior.

Bloomberg 

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