Billionaires are flocking to support former President Donald Trump’s 2024 presidential campaign. Apparently, they believe prospective benefits from lower taxes and less-aggressive regulation outweigh Trump’s behavioral transgressions.

Trump wants to cut corporate taxes and perhaps rely on tariffs to replace personal income taxes. Unfortunately for Trump, the world has changed since he won the 2016 election, and if elected to a second term, Trump’s tax cuts could prove a disaster for the U.S. economy.

First, in 2016, the federal deficit was 3.1% of GDP. Nowadays, without any policy changes, the Congressional Budget Office estimates it will be 6.5% of GDP in 2025.

Second, China has become a tougher competitor over the past decade. It has accomplished leadership in electric vehicles and battery technology and formidable prowess in green energy technologies, including solar panels, that critical to achieving a low-carbon economy.

Simply imposing tariffs on Chinese EVs won’t save U.S. automakers. Chinese manufacturers are establishing plants in Europe and Mexico that can easily sell to the American market.

China also is seeking to build a fully -independent advanced semiconductor supply chain.

Restrictions on access to U.S., Japanese and Dutch chipmaking technology may make Beijing’s ambitions more expensive, but Western policymakers would be foolish to assume this is an impossibility.

Third, Russia, China, Iran and North Korea have formed a coordinated “Axis of Upheaval” — orchestrated to circumvent Western sanctions, produce arms and share intelligence. Together, these governments seek to undermine the liberal international order established by the United States and its allies after World War II.

The threats are real. But given the sad state of preparedness among NATO members, a defeat or appeasement in Ukraine threatens wider war in Europe.

Meanwhile, China has built a formidable navy that threatens its neighbors in the East and South China Seas, along with U.S access to the foundries in Taiwan that manufacture the most advanced chips.

In addition, through terrorist surrogates such as the Houthis in Yemen, Iran has denied Western vessels safe access to the Suez Canal.

The Biden administration has countered by assembling broad Western support for Ukraine and creating a lattice of alliances from Asia through the Middle East and Europe to supplement U.S. resources. But these efforts only have substance if the U.S. military is adequately resourced — that would add another 2% of GDP to the U.S. budget deficit.

If Trump were elected and Republicans controlled Congress, it’s reasonable to assume expiring provisions of the Tax Cuts and Jobs Act (TCJA) would be extended and perhaps enhanced with lower corporate and personal income taxes.

Republicans in Congress would be inclined to boost defense spending. If isolationists on the hard right balked and forced negotiations with moderate Democrats, the horse trading could result in further increases in entitlements.

It may be possible to finance extension of the TCJA with Trump’s proposed 10% across the board tariffs and a 60% levy on Chinese imports, but those are hardly enough to finance increased defense spending too.

Trump’s 10% tariff would undermine security cooperation with America’s European and Asian allies. On economic issues, it would push them toward China, isolate the United States and significantly impair the overall competitive benefit of a 60% tariff on China for U.S. manufacturers.

The only reasonable way to find money to lower taxes and increase defense spending is to cut entitlements. Including Social Security and Medicare, those exceed 60% of federal spending, but Trump indicates little interest in such solutions.

Ultimately, outsized federal borrowing could instigate a run on U.S. Treasurys in international financial markets and compel much higher taxes.

Billionaires would become an easy target.

Outsized deficits could easily add one or two percentage points to the bellwether 10-year Treasury yield. That would not bode well for startups, entrepreneurs and corporate investments in new technologies like artificial intelligence, advanced chip design and manufacturing, new drug development, electric vehicles and battery technology, to name a few.

Investors wishing to hedge against Trump winning in November should be skillful about investing in bonds, since higher interest rates could bring losses, by structuring maturities to coincide with their liquidity needs.

Moreover, focus on the stocks of companies that have pricing power, because with Trump 2.0, the U.S. Federal Reserve could be forced to mitigate pressure on interest rates by printing money to buy bonds.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist