DONALD TRUMP'S ECONOMIC AGENDA: A RETURN TO COMMON SENSE

Alibek KONKAKOV

Director of Public Administration and Policy

This week, Donald Trump resumes his mission to "Make America Great Again." During the election campaign, he presented radical plans that startled the global economy. It's important to summarize his agenda and draw conclusions for Kazakhstan.

Trump's Economic Strategy: A Return to Republican Roots

Trump's economic strategy signals the Republican Party's return to its roots as the party of industry, infrastructure, and labor. This is reflected in the campaign platform titled "America First: A Return to Common Sense."

The platform outlines five key areas:

1. Reducing Regulation

2. Cutting Taxes

3. Fair Trade Agreements

4. Reliable and Affordable Energy

5. Promoting Innovation

Reducing Regulation (Expenditures and Government Apparatus)

The Republican Party's platform emphasizes the need to eliminate regulatory measures that "stifle jobs, freedom, and innovation, leading to widespread cost increases."

A notable initiative from Trump's first administration was the introduction of a "regulatory budget"—eliminating two regulations for every new one implemented and setting a spending cap for federal agencies on their implementation.

In his second administration, a new Department of Government Efficiency (DOGE) was established under the co-leadership of Elon Musk. The department was tasked with "reducing regulation, cutting wasteful spending, and restructuring federal agencies."

The Trump administration plans to reinstate the "regulatory budget," now with a more aggressive approach: eliminating ten regulations for every new one introduced.

In terms of fiscal responsibility, there is an ongoing effort to combat "massive waste and fraud" associated with annual government spending ($6.5 trillion). Elon Musk has stated a goal of saving at least $2 trillion.

In the 2023 budget, this amount represents 30% of expenditures. Over three-quarters of spending goes to politically sensitive areas—social security (21.3%), Medicare and Medicaid (13.8% and 10.1%), social benefits (7.3%), defense (13.2%), and interest payments on national debt (10.1%).

It's important to note that the last two items may only increase under Trump. In his first term, he significantly increased defense spending, and reducing debt payments carries the risk of default and recession. Therefore, reducing government spending will require:

• Increasing the efficiency of social spending (in 2023, fraud and erroneous payments in Medicare and Medicaid programs amounted to about $100 billion);

• Sharp cuts in other expenditures, including the elimination of certain government functions and reductions in the federal workforce.

Tax Policy

Tax relief is a cornerstone of "Trumponomics," aimed at increasing disposable income to stimulate private investment.

Among various proposals, the most defined is the extension of the major tax reform from his first term. There have been suggestions to make permanent the reductions in individual and estate tax rates.

Other proposed ideas for individual taxation include tax exemptions for social security benefits, overtime income, and introducing tax deductions for interest payments on auto loans. The most radical idea is replacing income tax with revenue from customs duties.

Regarding corporate taxation, Trump's proposals include reducing rates universally to 20%, and to 15% for companies manufacturing their products within the U.S.

Trade Policy

To compensate for budget losses, an increase in customs duties is proposed. The most prominent promise is the imposition of tariffs ranging from 10–20% on all imports and up to 60% on imports from China.

Other measures under consideration:

• 100% tariffs on goods from BRICS countries if they create an alternative currency for international trade;

• Elimination of WTO benefits for China: revoking its Permanent Normal Trade Relations (PNTR) status, effectively removing its WTO advantages;

• Reciprocal tariffs: increasing tariffs for countries that discriminate against American imports—creating unique tariff schedules for different trade partners.

Energy Policy

A key point in the campaign program is increasing oil production ("we will drill, baby, drill") to halve Americans' energy costs. A shift away from climate agendas is also anticipated.

Expected actions include:

• Lifting restrictions on the production and export of traditional energy resources;

• Initiating new energy infrastructure projects swiftly (discussions include declaring an energy emergency);

• Expanding areas on federal lands for oil and gas extraction.

Additionally, the U.S. is expected to withdraw again from the Paris Agreement and eliminate tax incentives for transitioning to green technologies, including tax credits for purchasing electric vehicles.

Promoting Innovation

Trump's campaign platform emphasizes the need for dominance in three emerging industries—cryptocurrency, artificial intelligence (AI), and space. This entails:

• Cryptocurrency: opposing the creation of a central bank digital currency, supporting the right to mine Bitcoin, and allowing free transactions without government oversight;

• Artificial Intelligence: promoting innovation based on the principle of free speech;

• Space: developing manufacturing industries in near-Earth orbit, returning Americans to the Moon and eventually to Mars, and strengthening partnerships with the commercial sector.

Consequences of Implementing Trump's Initiatives

The most significant concerns regarding Trump's initiatives pertain to trade and energy policies.

Experts estimate that increased U.S. tariffs could lead to an 8% reduction in China's exports and a 2% decrease in its economic growth. China's economy is already under pressure from prolonged issues in the real estate sector, rising local debt, vulnerabilities in the banking sector, and increasing youth unemployment.

Regarding Trump's energy policy, experts doubt the feasibility of significantly increasing oil production, as current U.S. levels are already at record highs. Production has steadily grown, except during the pandemic year, from 5 million barrels per day in 2008 to 12.9 million barrels per day in 2023. A historical record was set in December 2023, with monthly production reaching 13.3 million barrels per day.

These record production levels suggest a technical ceiling for significant capacity increases in a short time. Other countries are also unlikely to match U.S. production capacities.

Therefore, partially achieving Trump's goal may involve a symbolic (new record) increase in oil production by removing regulatory barriers to extraction and exploration. Indirectly, his goal could be achieved through the impact of new trade policies on the oil market, especially concerning China. If tariff increases significantly affect global demand, some analysts estimate that oil prices could drop by $11–19.

Impact of Trump's Economic Policy on Kazakhstan

With Trump's inauguration, a period of leveling trade conditions by the U.S. is set to begin. Trade wars, which had been frozen in recent years (but not halted), will gain new momentum.

The impact on Kazakhstan will be transmitted not only through the energy market but also through changes in the geography and dynamics of trade and investment flows. Trends like reshoring, nearshoring, and friendshoring have been established for some time, but with Trump's return, they will lead to fragmentation of global trade along geopolitical lines.

For the Central Asian region, as noted in a recent McKinsey study, such a scenario does not promise an increased role in global trade. There are certain opportunities for the region to participate more in global production chains. However, realizing these opportunities will depend on comprehensive approaches to leveraging investment potential (sustainable attraction of domestic and foreign investments, supportive trade policies, infrastructure development, human capital, and institutional conditions).

In light of the increasingly complex external environment, Kazakhstan should focus its economic policy on strengthening internal factors. This primarily means ensuring macro-fiscal stability—Trump's agenda could serve as a benchmark for optimizing budget expenditures by improving their targeting and eliminating waste in implementing unnatural government functions (e.g., subsidies to the real sector).

In this context, it is also advisable to study and adapt the new U.S. administration's approaches to deregulating the economy. Kazakh policymakers have already been inspired by the "1-In-2-Out" principle. Rational steps to further reduce regulatory burdens would send a strong signal to investors (both domestic and foreign) about the adaptability of Kazakhstan's economic policymaking in creating an investment-friendly environment.

Finally, given the potential freeze of the global climate agenda, Kazakhstan should adopt a pragmatic position on this issue.