Link to the Plan

I enjoy low-hanging fruit, so why not the future president of free world?

How Nations Grow and Prosper Fail (page 5)

The growth in any nation’s gross domestic product (GDP) – and therefore its ability to create jobs and generate additional income and tax revenues – is driven by four factors: consumption growth, the growth in government spending, investment growth, and net exports. When net exports are negative, that is, when a country runs a trade deficit by importing more than it exports, this subtracts from growth.

Here, we have a fundamental misunderstanding of accounting identity Y = C I G NX and its application. Specifically the effect on regulatory policy and taxes on it and GDP growth rate.

Firstly, consumption growth, investment growth, and government spending have no effect on GDP. The divine coincidence of monetary policy is that the Fed can minimize the output gap and stabilize inflation at the same time when offsetting changes in aggregate demand, which these three are. So, any changes in these three factors will have no effect on job creation or GDP.

Secondly, net exports has no effect on output. What Navarro thinks is going on is: Y = C I G Exports - Imports. That is, he believes that imports actually subtract from GDP. However, this is just to keep the Y = GDP. Consider what happens to something we import. We either consume it, invest it, export it elsewhere, or the government has bought it; in all of these cases, imports end up inflating C, I, E, and G. Thus, we subtract imports from their sum, to disclude them. Trade deficits do not subtract from growth

To the extent unfavorable tax, trade, energy, and/or regulatory policies “push” capital investment offshore or discourage onshore investment, nonresidential fixed investment is reduced in the GDP equation, and this “offshoring drag” subtracts directly from GDP growth.

It seems the author, Navarro, is against trade deficits and also against capital outflow. However, a trade deficit must result a capital inflow and a trade surplus results in a capital outflow.

Let's suppose for a minute that somehow Trump makes reduces those unfavorable regulatory policies (lol) and America seem like a stable nation to invest in (lol). Firstly, we would see a demand for US assets increase, which would cause the dollar to appreciate. This in turn would make foreign goods cheaper, since the $ is now worth more, and it makes domestic goods costlier to foreigners whose currency is worth relatively less. As a result, we would see a fall in NX and a rise in Navarro's heart rate. It wouldn't make any difference in the GDP though as the Fed would bring AD back to normal again. Lastly, there would be no effect on unemployment.

The general idea that capital inflows must be equivalent to net exports has been fairly empirically consistent as well.

In 2015, the US trade deficit in goods was a little under $800 billion while the US ran a surplus of about $300 billion in services. This left an overall deficit of around $500 billion. Reducing this “trade deficit drag” would increase GDP growth.

No.

Literally Coal Miners

[The Trump plan] proposes a temporary pause on new regulations not compelled by Congress or public safety and a review of previous regulations to see which need to be scrapped. Each Federal agency will prepare a list of all of the regulations they impose on American business, and the least critical regulations to health and safety will receive priority consideration for repeal.

To attack those regulations that “inhibit hiring,” the Trump plan will target, among others: (1) The Environmental Protection Agency’s Clean Power Plan, which forces investment in renewable energy at the expense of coal and natural gas, thereby raising electricity rates; and (2) The Department of Interior’s moratorium on coal mining permits, which put tens of thousands of coal miners out of work.

The paper states that Trump will dismantle regulations not threats to health and safety, and yet he follows up by promoting coal energy. It is literally established fact that dirty energy like coal threatens the health and safety of the entire world and the long-term economic impacts will be negative not positive. Reducing the regulatory burden on the coal industry will likely promote coal mining and make everyone worse off in the long run. Specifically, the environmental damage of climate change will impact our GDP negatively in the future.
So, why is Navarro promoting coal?

Trump would also accelerate the approval process for the exportation of oil and natural gas, thereby helping to also reduce the trade deficit.

Oh right, the trade deficit.

According to the National Association of Manufacturers (NAM), “for every one worker in manufacturing, there are another four employees hired elsewhere.” In addition, “for every $1.00 spent in manufacturing, another $1.81 is added to the economy” and this is “the highest multiplier effect of any economic sector.”

This is idiotic and makes no sense- unfortunately this criticism could be used for any block quote here. The number of employees in manufacturing has been falling while output has been going up. Yet, we aren't seeing mass disemployment, particularly not proportional to the ratio that the NAM quote refers to. In fact, looking at the yearly change in manufacturing employees times four versus the yearly change in total employees of other sectors, the data doesn't show such a correlation; correlation betwen the two isn't 1:4 and just seems to stem from the business cycle otherwise. Then again, Navarro is quoting a special interest that would directly benefit from the regulations.

This reduction in regulatory drag would add $200 billion of pre-tax profit to businesses annually. Taxing that additional profit at Trump's 15% rate would yield $30 billion more in annual taxes. This would leave businesses with an additional $170 billion of post-tax earnings.

This ignores tax incidence; taxing a potential profit of $200 billion at 15% will result in less than $30B of revenue and leave businesses with less than $170B in post-tax earnings. Navarro has a PhD in economics from Harvard by the way.

Businesses typically pay out one third of increased post-tax earnings so on this $170 billion of increased post-tax earnings, $56.67 billion more would be paid in dividends and taxed at an 18% percent effective rate. This would leave $113.33 billion of investable extra cash flow, and add $10.2 billion of personal income tax revenues to the Federal treasury each year.

This is an intermediate calculation because businesses would also earn a return on the $113 billion more in cash flow each year to invest. Assuming they only earn a very conservative 5% pretax per year on their investments and reinvest the profits, the cumulative pretax earnings on the reinvestment would be $256.86 billion over 10 years.

These pretax earnings would be taxed at 15% for another $37.51 billion of taxes. This brings the total taxes generated by regulatory relief to $439.51 billion in 2016 dollars over 10 years. Taxes are paid in nominal dollars so we have added a 1.1082 inflation factor for total taxes of $487.1 billion over the ten-year forecasting period.

Same mistake again three more times. Navarro makes the same mistake again four more times in section five, and four more times again in section eight.

Trump Will End, Not Start, A Trade War

There may be other wars to worry about.

Anyways, Sumner R1's some more of it here.

I want to emphasize his statement on China intervening to keep its currency at a higher exchange rate. As of 2014, the Chinese central bank has been selling (full data here) its foreign assets, which causes its currency to appreciate in value. They've actually been attempting to pull off all three corners of the Impossible Trinity.