The latest Bloomberg poll showed Donald Trump locked in a dead heat with his Democratic rival heading into the first televised debate Monday, a result that caused markets to grow skittish after a streak of relative calm. The CBOE Volatility Index (VIX) closed up 18.0% to 14.50 in its fifth-largest jump of the year so far. The S&P 500 slipped 0.9% to 2,146.10. (See also: Donald Trump for President: What Are the Chances?)

The debate, particularly in the first half when the focus was on economic and trade issues, delivered on the promise of volatility. While the candidates devoted much of that portion of the debate to ad hominem attacks, they did address trade, infrastructure investment, taxes and monetary policy.


Perhaps the sharpest exchanges were over trade, an area where Trump has staked his claim as a tough, America-first realist. He repeatedly attacked Clinton based on the fact that her husband signed NAFTA, a free trade agreement with Mexico and Canada, into law in 1993. He pilloried the agreement as “defective” and as “single worst trade deal ever approved in this country.”

He predictably drew parallels with the Trans-Pacific Partnership, claiming victory for Clinton’s 180 degree turn on an agreement that, as he pointed out, she once called the “gold standard.” Clinton now opposes the deal, which she says failed to meet expectations in its final form. Trump pointed to the loss of manufacturing jobs in states such as Michigan and Ohio. While these states have lost manufacturing jobs, their unemployment rates are both below 5%. (See also: Trans-Pacific Partnership Agreement: Pros & Cons.)

Trump cited the specific example of Ford Motor Co.’s (F) recent decision to move some operations to Mexico. He also referenced a wave of corporate inversions, in which a company acquires a foreign peer in order to move its tax base, saying he would lower corporate taxes in order to stop the practice. Asked how he would prevent companies from moving abroad in general, he described – without using the word – a tariff.

A note on Trump’s assertion that China has devalued its currency to use “our country as a piggy bank”: Though it may have been true once, most observers believe that China’s currency has been overvalued in recent years. The relatively sudden devaluation that occurred in August 2015 and set off a global market correction was less an example of China pushing the currency down against the market, and more of an example of the market – with the government’s blessing – pulling the currency down to correct for a previous intervention.

Infrastructure Investment

Both candidates addressed the need for infrastructure investment, with Trump likening the U.S. to a “third-world country.” For her part, Clinton predicted that some country will be the “clean energy superpower of the 21st century,” and if elected that country will be the U.S.

Clinton then segued into a discussion of Trump’s views on climate change, pointing out that he had previously called the phenomenon a “Chinese hoax.” He denied this. In November 2012, however, he tweeted: “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive”:

Trump then referenced an embarrassing episode for the Obama administration, the federal government’s failed investment in Solyndra, a solar power company, though he did not mention it by name. (See also, Why Infrastructure Will Win in November.)


Trump attacked Clinton for advocating “one of the biggest tax increases in history,” while Clinton tried a couple of times to coin the phrase “Trumped-up trickle-down” economics, a reference to the belief – which Democrats broadly reject – that policies that benefit the highest earners help the economy as a whole. (See also, Clinton Wants 65% Top Estate Tax Rate, Trump Wants Repeal.)

Trump claimed that his tax cuts would be the largest since Reagan, which the fiscally hawkish Committee for a Responsible Federal Budget called “largely true.” Following the Republican’s release of his third tax plan on September 15, the same organization estimated that his plan would cause the $14 trillion portion of the national debt held by the public – of $19.5 trillion total – to swell from 77% to 105% of GDP in 2026. Clinton’s plan would cause it to rise to 86%. Under Clinton the deficit, which the CBO forecasts at $590 billion for fiscal 2016, would expand by $0.2 trillion over the next decade, while under Trump it would expand by $5.3 trillion.

According to the conservative Tax Foundation, Trump’s tax plan would reduce federal revenues by $4.4 trillion to $5.9 trillion over the next decade, without accounting for their effect on GDP. Given a forecast of 6.9% to 8.2% additional GDP growth and an expanded tax base, the think tank estimates that government revenues will fall by $2.6 trillion to $3.9 trillion.

The group sees Clinton’s plan increasing tax revenues by $498 billion on a static basis; accounting for an estimated 1% reduction in GDP growth, it would collect an additional $191 billion.

Regarding Trump’s own tax returns, Trump said first that he would not release them because he was under IRS audit, then that he would release them if Clinton released the approximately 30,000 emails she deleted from her time as Secretary of State. Warren Buffett, speaking at a Clinton rally in August, had this to say about Trump’s audit: “I’m under audit too, and I would be delighted to meet him anyplace, anytime, before the election.” He added, “I’ll bring my tax return, he can bring his tax return … and let people ask us questions about the items that are on there.”

Monetary Policy

Trump accused the Federal Reserve of “doing political things,” presumably by keeping interest rates at a historically low target range of 0 to 25 basis points for the six years to December 2015 and keeping them at a range of 25 to 50 basis points since. He implied this loose monetary policy had re-inflated the “bubble” that caused the 2008 financial crisis (See also, Monetary Policy Has Reached Its Limit: Barclays.)

Binyamin Applebaum of the New York Times, which endorsed Clinton Saturday, called the accusation that the Fed was politically compromised “baseless.” Trump has changed his tack on the Fed’s dovish policy since April, when he told Fortune, “the best thing we have going for us is that interest rates are so low” and called a potential hike to 3% or 4% “very scary.”

“Just Listen to What You Heard”

Trump made a number of accusations Monday night, a few of them true, some patently false. Although it has no direct bearing on economic policy, it’s worth pointing out the bizarre assertion that Clinton has been fighting ISIS – an organization that did not exist in any form before the Iraq War – her “entire adult life.” Clinton was not always convincing in her attempts to rebuff Trump's attacks, but in general she displayed a commitment to facts and policy substance that Trump lacked.

Referencing the birther myth, Clinton turned the decision over to voters: “just listen to what you heard.” We did not hear much about the minimum wage, equal pay for women’s work, or profit sharing, policies that Clinton mentioned in her opening remarks but did not get the chance to address. We heard quite a bit more about things that should not be in question, like Obama’s birthplace. So far, it looks like round one goes to Clinton.

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