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Presidents actually have limited ability to do much for the economy

Peter Crabb
Peter Crabb

The Chinese government has a gift for President Trump – a trade truce. Early this month leaders from Beijing agreed to a 90-day “cease-fire” in the dispute and agreed to new trade negotiations with the United States.

This is good to hear, but everyone in Trump administration shouldn’t be patting themselves on the back for saving our economy. The president’s ability to affect the economy is limited both politically and practically.

The U.S. president today is called upon to wear many hats – military leader, business leader, and for some, even cultural leader. That’s not how it started.

The nation’s first president wanted nothing to do with the business and economic issues of the country. In one of his State of the Union addresses, George Washington wrote that he never wanted to be suspected of trying to “influence” Congress on legislative matters, such as taxation and spending.

Perhaps we expect too much of the president. Gene Healy, author of “The Cult of the Presidency,” writes that Americans today have a tendency to see their president as “our national father or mother, responsible for our economic well-being, our physical safety, and even our sense of belonging.”

Federal law today requires our president to prepare a spending budget and make economic forecasts. But no presidential budget has ever become law. Congress holds the purse strings and has the power to set economic policies, such as international trade rules.

University of Chicago economist and former chairman of the President’s Council of Economic Advisers, Austan Goolsbee, says, “The world vests too much power, certainly in the president, probably in Washington in general for its influence on the economy, because most all of the economy has nothing to do with the government.”

Negotiations with China may improve trade and business conditions there, if the intellectual property of U.S. firms is better protected, for example. However, the president’s strong-arm tactics will scare government and business leaders of other countries, endangering business conditions elsewhere.

International trade is not a contest with winners and losers. Economic theory and historical evidence have long shown the benefits of free trade across borders, as such trade allows people to specialize in those activities in which they have skill and cost advantages.

The government does more for the economy when it sets the proper environment for investment and innovation. Trade disputes create economic uncertainty, discouraging these beneficial practices.

Let’s ask less of our president and let U.S. businesses get back to what they do best: innovate and trade.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. pcrabb@nnu.edu.

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