Alfonse D'Amato

On trade, taxes and the economy, a steady hand is best

Posted

A half century ago, as President Richard Nixon sought to end the Vietnam war, he propounded a “madman theory” based on the idea that if the war didn’t end on terms acceptable to the U.S., Secretary of State Henry Kissinger should let North Vietnam’s negotiators know that Nixon just might be mad enough to use nuclear weapons on North Vietnam. Unfortunately, the risky gambit didn’t work, the war dragged on for years, and the U.S. suffered an ignominious defeat.

These shortcomings notwithstanding, it’s said that President Trump admires Nixon’s madman theory, and that a variant of it underlies his approach to negotiating with both foreign adversaries and domestic opponents. If so, this may help explain Trump’s zigzag negotiations on a number of trade, tax and other economic issues, and the head-spinning it’s causing.

On trade, the president has been right to vigorously protest China’s patently unfair trade practices toward the U.S. For many years, China aggressively manipulated its currency to keep its value artificially low, thereby making its exports cheaper and imports more expensive. China’s authoritarian leadership and its command economy have a long history of dumping products here at below cost, heavily subsidizing its favored domestic industries, stealing intellectual property, and doing nothing to stem the flow of the dangerous opioid fentanyl, which has poured into the U.S. from Chinese sources.

One American industry after another has been battered by unfair Chinese trade practices. And in truth, almost all previous efforts by American presidents of both parties have lacked the teeth and the tenacity to make a dent in those policies. Trump has shown a readiness to fight hard and long for a change in this situation, and he deserves credit for sticking to his guns against China. He has been willing to aggressively use all the tools in his arsenal — including tariffs — to bring China to the table for serious trade negotiations with the U.S.

It may be that these hard-nosed tactics are the only thing that will move the Communist Party plutocrats off the dime on trade issues and the fentanyl crisis. But there also may be limits to the effectiveness of swinging between tough and tender with Chinese leader Xi Jinping, who, like his Vietnamese counterparts decades ago, may just try to outwait the U.S. until our will weakens. That’s what North Korea’s Kim Jong-un has been doing with his foot-dragging on nuclear disarmament, and it’s what Xi seems to be doing on trade.

In the meantime, the uncertainly in the international trading system is dragging down worldwide economic growth. Every bit of bad economic news raises the specter of recession, with fear feeding on fear, and full-fledged, old-fashioned panic just a few short steps away. Media commentators hyperventilating about every hint of recession don’t help. Nor do the thinly veiled comments by Trump’s opponents making clear that they hope his signature economic successes will fade in time for next year’s elections.

This may be a time when a steady hand on the tiller is more effective than sailing headlong into the economic headwinds. It’s not the time to tinker with the tax code. Reactively cutting payroll taxes or capital gains taxes, as has been bandied about by the administration, is counterproductive. We face a trillion-dollar federal deficit this year, so adding more red ink to the budget may do more harm than good.

And while another cut in interest rates by the Federal Reserve might juice up the economy in the short term, it’s no panacea, either. Interest rates are already low, with loans readily available for businesses and homebuyers. What the CEOs of major American corporations say they need to plan for future economic growth is more certainty and predictability from Washington, not more knee-jerk reactions.

I have counseled before that our national leaders need to deal with the country’s major challenges. We must address the looming shortfalls in both Social Security and Medicare that threaten the financial stability of both of those critical safety net programs. And we should fix our broken immigration system.

It’s important to remember that our economy is still remarkably strong. Businesses — including those here on Long Island — are generally doing well. What may be helpful to recall is the admonition of another wily New York politician who made it to the White House, Franklin D. Roosevelt, and proclaimed, “The only thing we have to fear is fear itself!”

Al D’Amato, a former U.S. senator from New York, is the founder of Park Strategies LLC, a public policy and business development firm. Comments about this column? ADAmato@liherald.com.