No way Trump will cause a recession, adviser says

Donald Trump: Hillary Clinton 'a world class liar'
Donald Trump: Hillary Clinton 'a world class liar'

No, Donald Trump isn't going to cause the U.S. economy to tank, says Peter Navarro, an economist and Trump supporter.

In a scathing report last week, research firm Moody's Analytics said Trump's plans would cause nearly 3.5 million job losses and sink the nation into a longer downturn than the Great Recession.

Navarro calls that analysis "garbage" and argues that Trump's plan is the best for the economy since Ronald Reagan's. He notes the lead author of the Moody's report (economist Mark Zandi) is a donor to Hillary Clinton's campaign.

"The [Moody's] findings are based on flawed assumptions and gross misrepresentations of the Trump policies," says Navarro, an economics professor at the University of California-Irvine and a policy adviser to the Trump campaign.

Trump's economic platform has three key elements: A large tax cut for all individuals and businesses, a tougher trade policy, and immigration reform. Here's how Navarro fires back at Moody's "hit piece."

Related: Donald Trump says the whole economy is 'rigged'

1. Trump's tax cuts could boost growth

On tax cuts, most analysts have found that Trump's plan would lead a big decline in tax revenue. Since Trump hasn't specified meaningful spending cuts, the net result would be higher deficits and an explosion in government debt (nearly $10 trillion over the next decade). Moody's concludes that Trump's tax plan would be a drag on economic growth.

But Navarro says Moody's grossly underestimated the benefits of the tax cuts. Plus, Trump has said he will make the necessary spending cuts so the plan doesn't add to the debt.

"In reality, Trump's tax package will significantly stimulate GDP growth, the rate of job creation, and the tax revenues raised much as the Reagan supply side tax reforms did in the 1980s," writes Navarro in his own report that came out Monday.

Related: Hillary Clinton's 5 ideas to fix the U.S. economy

2. Trump won't cause a trade war, says Navarro

When it comes to trade, Moody's predicts Trump's plan to play hardball on trade with China, Mexico and other countries will ignite a trade war that costs U.S. jobs and sparks inflation.

Navarro says that's a sweeping assumption that misses the point of what Trump is trying to do on trade. He thinks it will play out like this: "Chinese leaders realize they no longer have a weak leader in the White House, China ceases its unfair trade practices, American's massive trade deficit with China comes peacefully and prosperously back into balance."

The U.S. currently runs a massive trade deficit with China, meaning the U.S. buys a lot more goods from the Chinese than it sells to them. The Trump campaign argues that leveling that playing field will be a big boost to jobs and growth in America.

Other economists and trade experts aren't so sure. Jobs, especially manufacturing ones, have also been disappearing because of technology and automation. Tough talk on trade alone won't bring those jobs back.

Related: Clinton vs. Trump on spending, taxes and debt

3. Curbing illegal immigration won't hurt U.S. workers

On immigration, Moody's found that Trump's plan to crack down on illegal immigrants would be costly for two reasons: First, the potential loss of millions of undocumented immigrants would lead to a reduction in the work force. In addition, the cost of enforcing the plan -- including 11.3 million deportations and additional border security -- will be high.

Navarro says the reality is American workers would be ready to fill the jobs currently held by illegal immigrations and that Moody's failed to account for the significant reduction in law enforcement costs once Trump's immigration plan goes into effect.

"These are jobs that many American citizens would gladly take if they weren't being pushed out by illegal immigrants," writes Navarro.

The key 2016 debate

How to supercharge America's economy is a key debate in the election.

Many American voters, especially in key swing states like Ohio and Pennsylvania, are frustrated. They see how 5 million blue-collar jobs have disappeared since 2000, and how middle class wages have flat-lined.

Voters want a candidate who can bring change for their pocketbooks. While Democrat Hillary Clinton leads Trump in most national polls, when voters are asked specifically which candidate they think would be best for the economy, they pick Trump.

The polls further illustrate the deep rift between what average Americans think and what prominent Republican business leaders believe. Meg Whitman, the CEO of Hewlett Packard Enterprise (HPE, Tech30), and Mitt Romney the GOP's 2012 presidential candidate, have warned that Trump would cause a recession.

Trump fires back that those two Republicans lost their elections and their credibility (Whitman ran unsuccessfully to be governor of California in 2010). Trump paints himself as a true outsider who can unseat the establishment.

"It's not just the political system that's rigged, it's the whole economy," Trump argued last week.

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