Worries Over a Great Economy?
Terry H. Schwadron
May 13, 2019
OK, the job hiring numbers are great, there are positive trends in productivity and economic performance, consumer spending continues to rise, and hourly wages are starting to improve — all according to the same government figures that for years, Donald Trump routinely had trashed as meaningless.
Wall Street is doing great — along with our retirement accounts, if we have them. Internationally, the United States is outperforming all other economies by the grossest measures.
But when you listen to the folks at the Fed or the would-be gurus about the economy or even our average middle-class personal conversations, there is worry about what’s just beyond the horizon.
Surely, the messiness resulting from the talks with the Chinese over trade, the unevenness of salary improvements for workers, the growing income gap between owners and workers, the unresolved debates over social issues like Medicare and health care insurance together are fueling a kind of tug of war over deciding whether the message we should be reflecting is as sunny as that emanating from the White House.
Indeed, what we’re seeing in the serious campaign to lean on the Fed to lower interest rates, what we’re seeing in talk of further tax cuts — again likely to be unpaid for in the federal budget — and the beating of drums over what international trade partners owe us are all efforts that we should be seeing in light of an effort to stretch out the longest period of recovery in memory.
With the elections looming in 2020, there is a great urgency, one would deduce, in keeping the string of 90 or 100 continuous months of growth going through the campaign. After all, at the end of the day, Donald Trump wants to be re-elected on the basis of a booming economy, however manipulated the results.
In the meantime, however, the trade war with China is breaking open, with the declaration of 25% tariffs on 6,000 consumer goods worth $200 billion a year — from small electronics to clothing to parts for manufacturing supply lines. The failure of the talks mirrors the deflation of the Trump approach with China; there is talk but no agreement in sight between the White House and Beijing teams. Even Trump is talking openly now about China stalling until after the 2020 election, in hopes of a change in personnel at the table. And his economic adviser, Larry Kudlow, acknowledges that Americans are paying for the tariffs.
The United States insists that the China fight is the right one, and that America is on the side of the angels in fighting institutional Chinese efforts to gain technical and economic intelligence from Americans doing business there, and, in general, wants badly to change the trade numbers between the two nations to make things look, at least, more favorable for American consumers.
Importantly, our current policies show absolutely no understanding or preparation for the coming automation of many, many more jobs in the United States through robotics or the economic realities of a world beset by climate disruption, where food and water will become increasingly scarce.
While the trade war is on, American farmers, manufacturers and retail consumers will suffer higher costs for Chinese-produced goods and the serious decline of a major overseas market. And, at least so far, there does not seem to be a rush among manufacturers to abandon their Chinese manufacturing plants to build new businesses in the United States, despite the interpretations offered by the White House.
What I see is a magic act by Trump to make things seem to appear better when the actual results for millions is less than tangible. The tax cuts, center of the Trump economic program, only favored a small percentage of the wealthy class and corporate owners. And in turn, actual results show that most American companies are using their tax savings to reduce debt and buy back stock rather than to invest in new American jobs or bringing back manufacturing from overseas.
One car company, for example, is proceeding with a new plant in Shanghai to produce cars to sell in China. This is the opposite result from what Trump describes. In the Midwest, plants continue to close, with new plants opening in Mexico, for production of cars intended for sale there, allowing corporations to avoid dealing with tariffs.
The Fed’s statements have promised caution about inflationary prices resulting from continued growth, and have insisted that their small increases in borrowing rates have been useful. Over the last two months, the White House wanted to nominate both Herman Cain and Stephen Moore, two pro-growth candidates who proved unable to win support in the Senate, to the Feb board. From time to time, Trump threatens to dismiss or undermine Jerome Powell, his own appointee as Fed chairman, only to back off and deny that he had tried to do so.
What is true for the Chinese talks is also true for negotiations with Europe, Canada and Mexico, and bilateral agreements with South Korea and Japan. The U.S. dollar is growing in value to the degree that it may be depressing trade itself, and the barely re-written NAFTA agreement still pends in Congress, where support is hardly guaranteed.
The bottom line is that while you’re hearing happy talk from the White House about the economy, try listening just a bit harder, because the rhythms of long-term economic success are discordant.