The second coming of Donald Trump has led many to prophesy the end of sustainable ventures in the US and a degradation in the environment. Listening to his rhetoric, that’s understandable. But I think there’s a reasonable chance that it won’t be anything near as bad as people believe. There are a few reasons for this, but they boil down to two main thrusts: Trump is a habitual exaggerator and the US economy is bigger than one man.
First up, a question. Is it better to allow foreign, heavily state-subsidised products into your market to be sold below cost while you subsidise your home-grown competitors, or should you put up big tariff walls and shut off your government support? I’m not an economist, so I don’t know for sure (and I’m pretty sure economists don’t really know for sure either)! But my starting point would be that they are essentially interchangeable: you either nullify the state-support of foreign imports at the border or you top up your local operators with state cash.
See also: PA Live: A world of higher inflation
There is one difference between the two options, however: if you decide to subsidise, you are bringing the state into the decision of what to fund. That always comes with the age-old problem that people are much looser with other people’s money. That’s true in any organisation (companies have agent-principal risks too), but it’s always worse in governments. In the public sector, no one’s going to get fired if the department makes a massive loss (you just print more money). If you simply slap big tariffs at the border, you’re evening the odds without having to employ lots of people to review applications for grants or tax breaks, allocate the money and pick winners. Instead, you can leave it to the private sector – those who are putting their own money where their mouth is – to take the decisions of what to fund.
That should mean that more money flows to the very best projects, with less wasted to poor public sector investment decisions or to hustlers feasting on government largesse. Not only that, but a lack of government handouts may make local producers more efficient and push them to cut costs and find better solutions and production methods. That could deliver better technology at a faster pace.
There are risks to this, of course. If Trump throws tariffs on anything that moves (which, to be fair, was his election platform), this will distort trade and upend the efficient workings of the US economy. If the US doesn’t have access to the best value parts and products, regardless of where they are made, then it will need to make them itself at the expense of something else that it could do better. And the product could be inferior.
We will soon see, but during the first Trump term we learned that he often overegged or over-threatened his policies, only to come to a more reasonable compromise. Not always, but often. The key is whether, as with most things, Trump has exaggerated his position for leverage in negotiations.
This brings us to the fact that the US is bigger than Trump – bigger than any president. Government makes up roughly 35% of the US economy; in other large, developed economies the state makes up more like 50%. The US is going to do what’s best for the US, regardless of what the president says. If Trump demands otherwise, he will likely end up like King Canute ordering the tide to turn.
For instance, the Trump administration has talked about wanting to boost oil production by 3 million barrels a day. That would be a nightmare for efforts to fight climate change. Yet it would also be a staggering 20% increase in current production which is already 50% higher than when Trump first moved into the White House in 2016. For this to happen, it will have to make financial sense to the companies doing the drilling. Without subsidies or other incentives (which haven’t been offered), that math simply doesn’t work with the oil price where it is.
Don’t forget that one of the biggest growth areas in the US is technology, AI and digital services. These areas are hungry for electricity, which means that America will need more energy, more efficiently. The Federal Energy Regulatory Commission expects annual national power demand growth will almost double to 4.7% during Trump’s term in office. Oil is not going to be the answer here. Natural gas could be part of the equation, but greater use of solar, wind, hydro and even nuclear, has massive advantages that tech companies have in many cases already decided on using when commissioning their power plants or securing long-term supply contracts.
Many US companies, and not just the tech sector, have been working for the past decade or more to cut emissions, reduce their environmental impact and generally improve their public image. They have done this because of widespread scientific agreement about the need to slow global warming to reduce harm and costs for everyone, as well as because often it’s simply more efficient.
As I’ve already said: America is bigger than one man. That’s what makes it great.
