Terry H. Schwadron
Dec. 28, 2019
To take a moment to consider the year we’re turning economically, let’s start at the end:
Last week, U.S. Steel laid off 1,545 workers in Ecorse, Michigan, outside Detroit, a plant that serves the auto industry — despite the continuing 25% tariffs that Donald Trump has continued and escalated in his zeal to underscore American predominance in international markets.
He even added Brazil and Argentina steel and metals to the tariffed import list in the last few weeks.
It was continuation of a policy that Trump insists is good for growth, good for jobs, good for the return of work to Americans from overseas. The key to continuous American growth, he says, is based on trade, and he uses “trade balance” numbers as if they reflect the realities of say, U.S. wages, or actual investments in areas like housing, health and food prices in this country.
The problem, of course, is that the tariff approach has pretty much proved a myth in the wider effects on the U.S. economy. The main reason, for example, that U.S. Steel is laying people off is because there has been a dramatic drop in steel prices and a current glut on the market. As The Detroit Free Press noted, Steel prices shot up in the aftermath of Trump’s announcement of tariffs in early 2018, only to collapse once older domestic steel plants restarted production and tariff-exempted foreign steel continued arriving on shore.
And now comes news that Boeing may never get its troubled 737 Max off the ground, following questions about its safety. That decision alone will ripple through the economy.
As we undergo an economic year-in-review, let’s remember that the rosiness of Trump’s promises are just that, a hyped view of the impact that his singular effort has produced.
Yes, jobless rates continued to fall this year to record lows, stock market valuations continued to rise to unexpectedly high levels, and Trump’s feud with the Federal Reserve over borrowing rates notwithstanding, the Fed has kept the price of money low. The tax cuts passed last year have ceased to be an incentive, and now all recognize that they favored the wealthy and corporations, who largely used the money less for job investment and more for debt reduction.
At the same time, Trump has cut food stamps and help for public schools.
And, we have a first phase of a China trade deal near signature, and Congressional approval for an updated North American trade deal passed — though only after Democrats forced labor and environmental rewrites.
Don’t look too closely at any single deal, however, because each seems to contain as much negative as positive.
What is true is that Trump’s stewardship of the economy this year is Uncertainty.
Trump has one basic economic belief: Growth. He promises growth beyond any economist’s wildest predictions, and then he claims we are seeing it, when the facts are not there.
With some more positive bumps, this economy is growing at more or less the same stately pace as in the years before Trump, which is a great achievement. It just isn’t what Trump says it is.
When markets keep their money rather than invest it, it reflects uncertainty. Trump tweet-centric announcements about trade deals and tariffs suggest instant market reactions. In fact, what we have seen is that the only immediate reaction to tariffs, as with China, is business failure for American farmers — followed by a Trump-led $16 billion in payments to farmers to make up for losses.
Automakers and manufacturers spend months and years rebuilding markets and supply lines, while Trump wants to take credit for short-term improvements.
Weirdly, Trump uses “trade balances” and “trade deficits” numbers to say America is winning.
This new China deal –which has yet to be signed — says American farmers can now sell twice as much as they have ever produced to China, thus theoretically taking $50 billion out of the trade deficit — while overlooking that China is now importing agricultural product from South America and U.S. farmers have been seeking new markets. What the rest of us see is that we’re selling the Chinese soybeans while they are selling us electronics.
Likewise, the new North American agreement will not move American auto-making jobs back across the border. And we just saw the effects on steel.
If it looks less rosy than Trump promises, it is because it is.
Why do so many people say they are having money problems if Trump’s rosy picture is properly capturing the moment?
It is because international trade is about marketplaces, not about wages that have stagnated, or income gaps between rich and poor, or because of constantly rising prices for health and housing. When 50,000 General Motors workers went on strike over pay and benefits, the White House was mostly silent. The White House contribution to the health cost issues is to undercut Obamacare and to bite gently around the edges of prescription drug pricing. In education, the administration suddenly is consumed with student rights rather than the rising cost of tuition or the fraud found in student loans. In housing, the administration is doing little to address slackening construction, and it is ignoring the possibilities of economic success in energy areas outside of widening of incentives for oil drilling and fracking for natural gas.
In backing mining, “clean coal” and old-line manufacturing over incenting development of clean energy companies and driverless cars, the administration is not only backing the wrong horses, but actively looking away from the biggest job-building areas altogether.
Manufacturing threated recession over the summer and has yet to turn around, leading to weaker economies in states that Trump needs to win in 2020. That includes places like Pennsylvania and Michigan where the unemployment rate is rising.
So, Trump has already gotten most of the economic incentives he wants, and yet not the growth he promises. In its place — uncertainty.
Presuming he continues in office, what are the possibilities for progress as he sees it? What will he promote as a reelection candidate? What will we question?
It is why Democrats have a chance to make economic realism and fairness viable issues.