BLUF: "But a sovereign wealth fund in the hands of someone with autocratic proclivities is problematic. The risk is that it could become a slush fund for the White House, beyond Congress’s reach. China and Saudi Arabia — whose authoritarian leaders Trump admires — are big into sovereign wealth funds. A sovereign wealth fund in Malaysia became apiggy bankfor government officials, a scandal that Trump’s attorney general in 2017called“kleptocracy at its worst.”
"Trump’s power play would extend to the Federal Reserve, the guardian of the dollar’s value. He wants a say in how the Fed sets interest rates. “I feel that the president should have at least say in there, yeah, I feel that strongly,” he said last month. “I think I have a better instinct than, in many cases, people that would be on the Federal Reserve, or the chairman.”
. . .
"Many Americans are receptive to Trump’s promise of an imperial presidency because they perceive that business as usual in economic policy has failed them, Steven Hahn, a Pulitzer Prize-winning historian at New York University, told me. Hahn, whose book “Illiberal America: A History” was published this year, said the economic side of authoritarianism has received too little attention. He remarked on “how crucially interconnected the political and the economic spheres are.”
"Trump’s power play would extend to the Federal Reserve, the guardian of the dollar’s value. He wants a say in how the Fed sets interest rates. “I feel that the president should have at least say in there, yeah, I feel that strongly,” he said last month. “I think I have a better instinct than, in many cases, people that would be on the Federal Reserve, or the chairman.”
Trump’s Economics, Too, Are Sounding More Authoritarian
Illustration by Sam Whitney/The New York Times; source images by CSA Images and traveler1116/Getty Images
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At first nobody stood up when Donald Trump stepped out from the wings to speak. There was an ovation, but a sitting one, from the well-heeled attendees of the Economic Club of New York luncheon on Sept. 5. Then, the billionaire John Paulson, a billionaire and Trump adviser who was seated on the dais, leaped to his feet. Gradually others fell into line. Eventually nearly every guest in the large room was at attention, applauding the former president.
Right now people are focused on Trump’s glowering, ineffective performance in his debate with Vice President Kamala Harris this week in Philadelphia. But last week in New York, boosted by that not-quite-spontaneous ovation, Trump came across as a man to be reckoned with. And, I would say, feared.
Trump added fresh details to an economic agenda that would concentrate more power in the hands of the president. In doing so, he put more distance between himself and traditional small-government Republicanism. Trump’s authoritarian tendencies on matters such as threatening to jail political opponents and to expel millions of undocumented immigrants in a “bloody story” have been clear for a long time. What’s emerging is an economic agenda that’s increasingly similar in tone and ambition. It begins to approach what some scholars call authoritarian capitalism.
The key is the exercise of power. Trump talks about applying tariffs as an America First strategy, but it’s also a Trump First strategy: Tariffs are one of the few economic weapons that a president can use without going to Congress. Section 301 of the Trade Act of 1974 gives the president broad authority to impose trade sanctions on countries that burden U.S. commerce in ways that are judged to be “unjustifiable” or “unreasonable.” Section 232 of the Trade Expansion Act of 1962 allows the president to impose import restrictions on national security grounds.
Trump wielded both trade laws repeatedly while in office, but he wants even more freedom of action. If elected, he’ll try to get Congress to pass what he calls the Trump Reciprocal Trade Act, which would empower him to impose tariffs on other countries as high as theirs on the United States. “In other words, if you screw us, we will then screw you,” as he put it on the campaign trail.
There’s nothing authoritarian or imperial about raising tariffs, of course. The Biden administration kept most of Trump’s tariffs in place and imposed new ones on China. Vice President Kamala Harris has also talked tough on trade.
The issue is how Trump wants to do it: on his own. Biden has coordinated with allies to combat China’s unfair trade practices and has worked with lawmakers to invest in domestic manufacturing. Trump, by contrast, imposed tariffs even on U.S. allies (some of which Biden reversed) and has no interest in meaningfully involving Congress in trade, even though the Constitution gives Congress exclusive authority to impose taxes (notwithstanding those two tariff loopholes) and the Senate the power to ratify treaties (such as trade deals).
In his New York speech, Trump pitched tariffs as a cure-all, promising that they would save American jobs while taking in trillions of dollars that could be used to wipe out the deficit, pay for child care and build up a new sovereign wealth fund “to invest in great national endeavors,” among other things. Republican and Democratic economists alike have called this a fantasy, and even self-contradictory: If high tariff rates do suppress imports, the trade deficit will shrink, but so will the revenue that the tariffs are supposed to raise.
Why does Trump resist the warnings so stubbornly? I think it’s because of the irresistibility to him of tariffs as a powerful weapon that he perceives as his and his alone.
As for that sovereign wealth fund that he proposed in New York: Like tariffs, it’s not an inherently authoritarian idea. Norway has a big sovereign wealth fund, as does Alaska. The Biden administration wants a national one, too.
But a sovereign wealth fund in the hands of someone with autocratic proclivities is problematic. The risk is that it could become a slush fund for the White House, beyond Congress’s reach. China and Saudi Arabia — whose authoritarian leaders Trump admires — are big into sovereign wealth funds. A sovereign wealth fund in Malaysia became a piggy bank for government officials, a scandal that Trump’s attorney general in 2017 called “kleptocracy at its worst.”
Trump’s power play would extend to the Federal Reserve, the guardian of the dollar’s value. He wants a say in how the Fed sets interest rates. “I feel that the president should have at least say in there, yeah, I feel that strongly,” he said last month. “I think I have a better instinct than, in many cases, people that would be on the Federal Reserve, or the chairman.”
If he wins, investors will fear — rightly — that the Fed will keep rates too low before the next election, risking inflation, to help the Republican candidate. That would damage faith in American assets and ironically push interest rates up. Undermining trust in the Fed’s independence is obviously counterproductive. The only reason I can imagine that Trump would do so is that he is entranced by the lure of controlling the economy’s money center and refuses to grasp the consequences. Irrationality of that sort is the authoritarian’s Achilles’ heel.
The economic record of authoritarians is mixed. On the good side, an authoritarian or autocratic leader who governs honestly can whip a poorly functioning economy into shape. The classic example is Lee Kuan Yew, the founding father of modern Singapore.
Recently, though, their track record has been mostly poor. In China, President Xi Jinping has stoked inefficient state-owned enterprises while throttling the more innovative private sector, which is less under his control. Under President Vladimir Putin, Russia’s economy has become a Potemkin village: prosperous in the show cities of Moscow and St. Petersburg but impoverished in the hinterlands. Turkey’s president, Recep Tayyip Erdogan, allowed inflation to get out of control by insisting on a benighted theory that low interest rates are the way to rein in prices. Under the presidency of Viktor Orban, Hungary has become the most corrupt nation in the European Union, according to Transparency International.
That hasn’t discouraged Trump, who sees things to emulate in the regimes of Xi and others. Discussing the protectionist trade measures he has in mind in his New York speech, he said, “China was built on exactly what we’re going to be doing.”
Many Americans are receptive to Trump’s promise of an imperial presidency because they perceive that business as usual in economic policy has failed them, Steven Hahn, a Pulitzer Prize-winning historian at New York University, told me. Hahn, whose book “Illiberal America: A History” was published this year, said the economic side of authoritarianism has received too little attention. He remarked on “how crucially interconnected the political and the economic spheres are.”
So, is Trump an economic authoritarian? I asked several experts. Scott Lincicome, the vice president for general economics at the Cato Institute, which supports free trade, wrote to me that Trump’s recent policies “increasingly resemble the kinds of policies one tends to see in more authoritarian and illiberal states.” But he added that they don’t clearly cross the line into authoritarianism. “I tend to see most of this stuff as reflecting both Trump’s longstanding biases toward protectionism and ‘strongman’ antics plus election-year tactics to win votes,” he wrote.
Richard Carney, an associate professor of global studies at the Chinese University of Hong Kong’s campus in Shenzhen, China, also told me that Trump isn’t (yet) acting like an out-and-out economic authoritarian. But he said Americans “should be attuned” to warning signs such as attempts to shut down or take over strategically important businesses. “That would make me even more worried,” he said.
Actually, Trump has flirted with the behaviors that Carney worries about. In 2020 he threatened to shut down social media platforms ahead of the presidential election because, he tweeted, they “totally silence” conservatives. Last year on his Truth Social website he wrote that Comcast, the parent of NBC News and MSNBC, should be investigated for its “Country Threatening Treason.” (Treason can be punished by death.)
In authoritarian capitalism, the state actively controls the economy, and the independence of state institutions is reduced “to serve the governing elite’s interests,” Dorottya Sallai, an associate professor at the London School of Economics, wrote in an email. The open question is whether Trump’s policies “will strengthen or weaken democratic institutions and the rule of law, and whether they will serve the broader public good or the political elite’s interests,” she wrote.
The signs aren’t encouraging. If Trump wins in November, his political opponents will be at risk. So will the U.S. economy.
The Readers Write
Nobody ever says this, but what (other than public opinion) would prevent Congress from changing the tax code to start taxing Roth withdrawals? Maybe not at the current tax rate, but 1 percent or 2 percent, or maybe taxing beneficiaries only? As government finances get worse, Congress will be looking for ways of raising tax revenue. This idea haunts the back of my mind.
Donald Davis Champaign, Ill.
You wrote about taxation of unrealized capital gains. The biggest horror is living in a modest house for 30 years and — upon downsizing — having a capital gain on the sale that swamps the $500,000 (for couples) exclusion. Suddenly you face an unexpected $200,000 tax bite. About time to raise the exclusion with inflation.
Ben Barkow Toronto
No one seems to recognize that ordinary folks pay wealth taxes all the time: local property taxes. Many people on fixed incomes are forced to change their living arrangements when reassessments of their real estate values make their continued residence unaffordable.
Abraham Chasnoff Farmingdale, N.J.
Why not do what the investor Bill Ackman said months back? Just treat borrowings against shares as a sale of those shares to the extent of the percentage borrowed. So if shares are worth $10 billion, and the borrow is $2 billion, $2 billion worth of shares are considered sold for tax purposes. A lot simpler and a lot closer to the true economic situation as the taxpayer has cashed out to some extent.
Bill Hoke Santa Fe, N.M.
The Canadian solution: A final tax return must be prepared on income and capital gains earned up to the day of death. The remaining is free for the heirs. De facto you pay your taxes before dying!
Daniel Leblanc Montreal
I give you an alternative: Make the estate tax work the way it should work. Get rid of all the various trusts, family LLCs, and life insurance workarounds that avoid the estate tax. The only allowable estate tax avoidance technique should be leaving it to charity.
David Haas Mahwah, N.J.
Quote of the Day
“If you would know what the Lord God thinks of money, you have only to look at those to whom He gives it.”
— Maurice Baring, as quoted by Dorothy Parker in Marion Capron, “The Art of Fiction No. 13” The Paris Review, Issue 13 (Summer 1956).
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