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How 'MAGAnomics' can deliver for the US

'The economy, stupid". It was the campaigning phrase that stuck, back in 1992, during Bill Clinton's successful bid for the White House. Focusing on the economy helped Mr Clinton beat George H. W. Bush in the race for the US presidency.

A quarter of a century on, "the economy, stupid" remains a popular political leitmotif, used the world over to stress the importance of living standards in any electoral contest. Donald Trump just brought that sentiment back home.

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Amid the pomp of his French visit and the latest instalment of "Russia-gate", last week saw the launch of "MAGAnomics" - a new attempt to put the economy at the forefront of the American presidency.

"MAGAnomics means sustained 3 per cent economic growth", wrote Mick Mulvaney, Mr Trump's office of management and budget director, in the Wall Street Journal - combining "economics" with the President's "Make America Great Again" catchphrase.

Two-term president?

So what are the prospects for the world's biggest economy under Mr Trump? Will the US perform well enough for Mr Trump to be more than a one-term president?

Mr Trump has by no means been the economic disaster that many feared. As his poll ratings climbed ahead of last October's election, so did the garish warnings of a stock market crash if he won.

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The Dow Jones Industrial Average, the benchmark US equity index, did indeed plunge 800 points the morning of Mr Trump's victory. But it ended the day 1.4 per cent up.

The 45th president's economic program may amount, still, to a series of slogans. Yet US stocks have risen 18 per cent on average since he put his feet on the Oval Office desk.

Higher rates

Equity markets aside, the US economy isn't doing too badly. The jobs numbers remain strong, with unemployment low at 4.4 per cent, down from 10 per cent in 2009. National income expanded 1.4 per cent during the first three months of 2017, a reasonable annual rate.

What's also impressive is that Mr Trump got behind Janet Yellen's interest rate rises, even encouraging them. The Fed supremo has now overseen three rate increases since Mr Trump took office: in December, March and June.

While weighing on mortgage-holders, this incremental monetary tightening helps far more numerous savers - and, by signalling a return to normality, is arguably a net economic positive.

Politicians typically fret when central bankers turn down the music. Yet far from discouraging higher rates, Mr Trump initially chided Ms Yellen for not raising fast enough.

Mr Trump's tax package is vital to his economic narrative, yet the political squabbling is likely to get worse.

Tax reform

There's a huge question mark, though, over Mr Trump's economic policy and the stated goal of 3 per cent annual growth - namely his inability, so far, to secure meaningful tax reform.

Mr Trump's campaign rhetoric, when he wasn't talking about "confronting China" and "building walls", contained a lot about lowering taxes. His fiscal spiel is Reaganite - Mr Trump wants to "ride the Laffer curve", lowering taxes sharply in the hope that, via faster resulting growth, the overall tax take rises.

So far, though, he has struggled to deliver a fiscal stimulus - a failure that recently prompted the IMF to sharply cut its US growth forecast for 2018 from 2.5 per cent to 2.1 per cent. Officials have also vowed to boost growth by getting tax legislation to Congress in September and pushing through infrastructure spending.

Despite the Republicans controlling both the Senate and the House of Representatives, party political in-fighting - and the stream of Trump-related political crises, self-imposed and otherwise - have repeatedly delayed measures to cut corporation tax and deliver broader tax simplification.

Mr Trump's tax package is vital to his economic narrative, yet the political squabbling is likely to get worse.

That is because, even if the Laffer curve holds, tax cuts cost money in the short run, adding to the US national debt.

"Even with an ideal constellation of pro-growth policies," says the IMF, questioning Trumpian economics, "the potential growth dividend is likely to be less than that projected ... and will take longer to materialise."

Approval ratings

For my money, I think the US economy will stay relatively strong. I'll also chance my arm and predict that Mr Trump will win a second presidential term.

The Republicans have already won a series of special elections this year - notably in Atlanta and South Carolina, but also Kansas and Montana. The opposition also has no credible candidate - one reason Mike Bloomberg, the former New York City mayor and a leading Democrat, says Mr Trump has "more than a 50 per cent chance" of winning in 2020.

For all the garish headlines about Russia and misogyny, Mr Trump's approval ratings had been holding up. The more the Democrats and their media allies throw at him, the more he claims "witch-hunt". It is a tactic that, on balance, seems to work.

'Fiscal cliff'

The dangers for Mr Trump lie elsewhere.

Every two years, Congress must pass budget agreements to lift the ceiling on the US national debt - about to top a staggering $US20 trillion. Since March, the US Treasury has relied on "extraordinary measures" to keep government running, ahead of the current deal expiring in September.

Expect to hear a lot more about America's "fiscal cliff" over the next few months, as the US flirts once again with the threat of sovereign default.

If Mr Trump can mollify his party, this northern summer's inevitable fiscal crisis could presage a much bigger deal, with the President getting the tax cuts he and much of his party wants. But if the Republican power brokers in Congress tire of his antics, this looming debt-ceiling row could spark the beginning of Mr Trump's demise.

Congress is packed with fiscally conservative Republicans outraged Mr Trump has hijacked their party. It will be his own party that removes him, if he is to be removed.

My hunch: with a prevailing economic wind, the Donald will become a two-term president.

The Daily Telegraph, London

Originally published on smh.com.au as 'How 'MAGAnomics' can deliver for the US'.