opinion:
President Biden's disastrous performance in a debate with former President Donald Trump last month sparked panic among Democrats about salvaging or replacing Biden's candidacy and among bond investors over the impact of a second Trump presidency on economic policy and interest rates.
Trump will be constrained by the largest federal deficit as a percentage of gross domestic product in the past 100 years, excluding World War II, the 2007-2009 global financial crisis and the coronavirus pandemic.
The deficit can only be significantly reduced if the Tax Cuts and Jobs Act's (TCJA) individual tax cuts expire at the end of 2025.
At the same time, the economy is slowing and business as usual measures are not working.
Our 21% corporate tax rate is competitive with rates in other developed countries and adequately supports investment, and Americans pay far too little in taxes for the European-style social security system that Congress built for them.
Global bond markets will not be able to easily support more debt, especially as China and Japan need to reduce their government bond holdings to support their struggling currencies.
Biden has already tried to boost spending, including student loan forgiveness, aid for Israel, Taiwan and Ukraine, Federal Deposit Insurance Corp. allocations to bail out failing banks and additional Medicaid spending.
Now, his industrial policy investments in manufacturing and infrastructure are paying off.
Most of these policies are irrevocable.
As the commercial office leasing crisis threatens local banks, will the FDIC be allowed to not pay depositors the next time Silicon Valley Bank, Signature Bank or First Republic Bank fail?
Would Trump stop construction of a new rail tunnel under the Hudson River?
Trump could pay for the extension of the TCJA's personal tax cuts with a 60% tariff on China and a flat 10% tax on most other imports, even though the latter has geopolitical implications the country cannot address.
Currently, the U.S. military and defense industrial base, which represent the lowest percentage of GDP since World War II, are stretched to the limit as they supply Ukraine and Israel, counter Iranian-backed terrorists in the Red Sea, strengthen NATO, and prepare for a confrontation with China in the Pacific.
At a time when Japan, European NATO allies, and other allies are increasing their defense budgets and facing growth challenges of their own, shifting the U.S. tax burden to friendly nations through import tariffs is not a good way to maintain their support.
Trump has said he could end the Ukraine war quickly, without explaining how.
Even if that were to happen, Russian President Vladimir Putin's forces might mass elsewhere, threatening the Baltic states or Finland, for example.
For all his big talk about NATO, it is hard to imagine Trump getting the US to abandon Europe.
With the reasonable expectation that Trump will seek to extend the TCJA's expiration provisions, find further tax cuts, and be forced to increase defense spending due to harsh global security realities, the recent spike in Treasury yields after the presidential debates indicates well-founded fears that a second Trump presidency would stimulate inflation and push up long-term interest rates.
Biden's industrial policies are too costly and there is room for cuts, but Trump wants to eliminate some of them entirely.
As China widens its lead in electric vehicles, battery supply chains and green energy, and develops its semiconductor industry that both designs and manufactures high-performance chips, manufacturing investment will decline, growth will slow further and the United States will be put on a path of deindustrialization.
The fastest growing employment sectors are in health care, leisure and hospitality and government. Immigrants have been essential to fill nursing shortages and other low-skilled roles in health care and hospitality.
The construction of semiconductor factories relies heavily on the supply of skilled immigrant engineers.
In 2023, the US economy will add about 250,000 jobs per month, increasing GDP by 2.5%. Native population growth and legal immigration will only be able to fill 100,000 of these jobs, so illegal immigrants who find work will be driving US growth.
Yes, the border needs to be closed, but to keep the country growing, we need to increase legal immigration quotas. Trump only talks about the former.
Overall, we see a paradox of pain: As federal borrowing squeezes the financing needs of the private sector, growth slows, inflation rises, and long-term interest rates rise.
While a stock market crash is unlikely, ordinary Americans should be careful about investing college funds or retirement savings in bonds that they cannot hold to maturity, or risk suffering capital losses when interest rates rise.
An S&P 500 index fund is a good long-term investment because large companies are better able to handle inflation and policy uncertainty. When picking stocks, consider sectors that are likely to benefit from rising inflation and interest rates, namely healthcare, financials and energy stocks.
• Peter Morici is an economist, professor emeritus of business administration at the University of Maryland, and a national columnist.