Trump-Enomics and the Real World

One of the most fascinating aspects of Donald Trump’s economic program is his arrogant assumption not only that “I’m the only one who can fix America,” but that HE can control other countries and even global dynamic market forces by his verbal assaults and bullying policies. He holds multinational trade agreements in disdain and believes U.S. bargaining power can, through bilateral trade agreements, force the results he wants. So far, China is pressing back, even though everyone believes that they have always been willing to work out a mutually beneficial agreement. Trump wants it to be one-sided, and if Xi Jinping were to cave, his days as China’s leader would be numbered.

Let’s start with Trump’s false “job-creation” mantra that deregulation will bring American power companies back to coal-powered electricity plants and restore coal mining jobs to earlier halcyon days. But power companies continue to look for greener solutions, and coal mines continue to close albeit at a slightly slower pace than in pre-Trump days. Moving America back to coal was a concept that was dead on arrival.

Bringing manufacturing back to the United States – resourcing off-shore movements from U.S. companies – by charging massive tariffs to those who still manufacture overseas has two basic flaws: 1. Reshoring generally comes back to U.S. companies that are highly automated, which hardly restores high-paying jobs in that sector but clearly rewards those who own those fancy machines. And 2. Tariffs are not an incentive; rather, they are a consumer tax.

Take the misguided high tariffs on well-priced aluminum and steel from overseas. The U.S. steel and aluminum industries are relatively small in the United States with very little room to grow even if they wanted to. But the industries that rely on those metals, which employ a multiple of workers, are getting slammed and forcing layoffs which will exceed (by a significant multiple) any job gains in those relatively smaller metal providing plants. The March 14^th Tyler (Texas) Morning Telegraph provides this simple explanation:

“Tariffs are import taxes. Their immediate effect will be to jack up the prices of the metals in the United States. That sounds like good news to the 140,000 steelworkers and 28,000 aluminum-workers. But it's bad news for the more than 6 million people who work in the two metal-consuming industries. Their companies will now face higher costs, which could lead to layoffs and factories moving abroad.” According to union reports in those metal-producing sectors, a few thousand jobs have been restored. But the layoffs in metal-using companies have already exceeded those gains, with more such layoffs expected.

Responding both to changing consumer tastes (a preference for SUVs and crossovers vs sedans and coupes) rising manufacturing costs because of higher steel and aluminum costs, “General Motors Co. will cut as many as 14,000 workers in North America and put five plants up for possible closure as it abandons many of its car models and restructures to cut costs and focus more on autonomous and electric vehicles, the automaker announced Monday [11/6]… The reductions could amount to as much as 8% of GM’s global workforce of 180,000 employees… The restructuring reflects changing North American auto markets, which have been shifting away from cars and toward SUVs and trucks. In October, almost 65% of new vehicles sold in the U.S. were trucks or SUVs. That figure was about 50% cars just five years ago.” Los Angeles Times, November 27^th.

Trump is powerless against genuine macro market realities. “Donald Trump can fret over General Motors Co.’s plan to close plants, slash jobs and ditch models. He can even threaten, as he did Tuesday [11/27]… But market forces are tough to beat, even if you’re president.

“Trump captured the White House thanks in large part to the story he told — that he could reverse America’s industrial decline. He promised to bring back manufacturing and fossil-fuel jobs written off as casualties of global trade and over regulation… But almost halfway through Trump’s first term, divergences from his ‘Make America Great Again’ story line continue to pile up, pushed along by technology, globalization and a changing climate.

“Trump is fighting back. On Tuesday [11/27], the day after GM’s announcement, he tweeted out threats to cut all the subsidies GM receives, including tax breaks for electric vehicles… Larry Kudlow, director of the White House National Economic Council, also piled on: ‘There’s great disappointment that it seems like GM would rather build its electric cars in China rather than the United States,’ Kudlow told reporters at a briefing.

“Trump wasn’t specific about the subsidies he was referring to, but consumers are eligible for a $7,500 federal tax credit toward the purchase of electric vehicles such as the Chevrolet Bolt… GM’s stock price fell 2.6% on Tuesday [11/27], wiping out much of its gain from the day before. Monday’s [11/26’s]rally was linked to Chief Executive Mary Barra’s plan to boost cash flow by shutting plants in the United States and Canada, laying off thousands of workers and jettisoning struggling sedans.

“It’s unclear whether Trump has the authority to revoke subsidies without action by Congress. It’s also difficult, if not impossible, for Trump to overcome the dynamics that are driving companies to choose robots over humans, discontinue brands and close plants. Some are choosing to build nearer to their consumers and supply chains, including China, while others are moving production lines to lower-cost countries, such as Mexico… ‘The market is a tsunami,’ said Seth Kaplowitz, a finance lecturer at San Diego State University. ‘If you surf it, you’ll be fine, but if you push back, it’s too strong.’

“Trump has gone to great lengths to revive once-storied industries. America’s steel and aluminum companies won levies to hamper foreign competitors. He hit Whirlpool’s top rival, South Korea’s Samsung Electronics Co., with tariffs on washing machines. For coal miners, Trump is proposing to reduce Obama-era environmental regulations. He billed his corporate-tax cut as an elixir for capital spending and job creation.” Los Angeles Times, November 28^th. That much-touted tax cut for the rich, by the way, brought lots of dividends and stock buybacks to benefit shareholders but did very, very little to create well-paying jobs.

California’s Inland Empire (east of Los Angeles) is typical of work patterns across the nation (where the overall numbers seem to look good) under Trump policies: “The vast area encompassing Riverside and San Bernardino counties has added 200,000 jobs since the peak of the recession. Payrolls are swelling at a year-over-year rate of 2.5%, faster than in neighboring Los Angeles County or California overall.

“The jobless rate is down to 4.1%, and the spectacular growth of the warehouse and transportation industries seems unstoppable, fueled by the region’s e-commerce appetite along with the fact that, despite the current trade dispute with China, the port complex of Los Angeles and Long Beach remains the main hub of imports from across Asia… But a report released Tuesday by UC Riverside’s new Center for Social Innovation, ‘State of Work in the Inland Empire,’ paints a grim picture of the struggles behind the broad statistics…

“The report, drawing on data from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics and academic studies, found that: … Despite lower housing costs in the Inland Empire than in coastal counties, just 4 in 10 jobs pay enough for families to make ends meet… Poverty rates in Riverside (15.3%) and San Bernardino (17.6%) were higher last year than before the Great Recession, and income inequality grew from 2010 to 2016.” LA Times.

Trump’s statistical braggadocio is mostly sloganeering, showboating for the base. For the most part, the aggregate numbers generate good overall statistics while still leaving displaced blue-collar workers wondering when they will get their obsolete jobs back. The statistics reflect huge gains at the top of the food chain with modest gains elsewhere that hardly make up for the increased cost of living.

“Trump has channeled working-class anger in Michigan and other manufacturing states since his campaign, lamenting the loss of industrial jobs. He has cut corporate taxes substantially and imposed tariffs on steel and aluminum. The effects of those policies on the economy have been widely debated… In many cases, his threats do not produce policy proposals, or any results at all.

“He tweeted repeatedly over the summer against Harley-Davidson after it announced it would move production of European motorcycles overseas… ‘If they move, watch, it will be the beginning of the end — they surrendered, they quit!’ Trump tweeted in June . ‘The Aura will be gone and they will be taxed like never before!’.. Trump later tweeted support of a boycott. But he neither sustained that effort nor outlined any plans or attempts to tax the company.

“In September, he threatened to take action against Google unless it changed its algorithms to display more positive news about him and his administration. Again, no action followed… Trump made a splashy promise last year that the Keystone XL pipeline would be required to be built with American steel. But his administration conceded weeks later that his ‘buy American’ requirement could not apply to that project.

“After Trump attacked Amazon for having a favorable relationship with the U.S. Postal Service, his administration formed a special commission to reform the Postal Service. The commission, created in April, has yet to release its report.” LA Times, November 30^th. But Americans can expect his policies to generate some real pain in the immediate future. Let’s see if anything comes of his G-20 conversations with Chinese President Xi Jinping.

Expect consumer prices to rise sharply after January when the next phase of Trump tariffs kick in. Kind of makes you wish Trump had actually gone to his Wharton economics classes, doesn’t it? But then, education is so elitist… and Donald’s so much more effective making it up as he goes along, huh?

              I’m Peter Dekom, and sooner or later, not dealing with reality will come back and take a really big bite out of you.