This current economic boom began
under the fiscal and monetary policies of the Obama administration, although
Mr. Trump takes credit for it all. His shoveling of trillions of dollars of
unnecessary tax cuts to corporate America tanked the deficit by trillions of
interest-bearing dollars, resulted mostly in stock buybacks and dividends
benefitting the richest in the land but produced almost no new investment
capital. Put more money into a corporation, even if it is not generated by
running a profitable business, and of course the stock price will soar,
especially when you keep interest rates low. It has little to do with
productivity.
Jobs? Unemployment numbers? If you do
not peel back the surface numbers, the numbers are indeed impressive. But for
70% of working Americans, the rising costs fomented by truly ill-thought out
economic policies, the net result is no result. Buying power is stagnant, and
we have never had so many working-years-adults simply give up looking for work.
Lots of work in the gig and part-time economy, with no benefits or job
security, and lots of folks having to hold down two (or more) jobs just to make
ends meet.
But what really brings home the
failure of Trump’s economic policies, where multinational trade agreements are
replaced by one-on-one trade negotiations and simply ignoring the most basic
laws of supply and demand, are the industries that Trump has pledged to turn
around to Make America Great Again. Not only has the global aversion to
coal-fired power generation continued to escalate – resulting in the closure of
even more U.S. coal mines and the reduction of that work force – but where
Trump has imposed high tariffs to “create more jobs in the U.S.,” the blowback
has produced very much the opposite result.
Some companies have been forced to
shift their global manufacturing outside the United States to avoid being
caught up in the retaliation from other nations against U.S. tariffs against
their goods. Look at General Motors’ closing traditional plants in Ohio and
opening up new manufacturing centers in Mexico. Where manufacturing “reshoring”
has returned to the United States, it has not resulted in massive numbers of
high-pay manufacturing jobs being recreated; robots do that work now, and the
companies that own that automation now earn the money that once was paid to
workers.
As climate change flooding – against
the “climate change, what climate change?” policies of the Trump administration
– has slammed Midwest farmers, his “national security” driven tariff wars have
changed international buying patterns, allowed new agricultural competitors to
replace what used to be American agricultural exports and taken a big bite out
of U.S. farming income (even with his federal handouts). And as Trump
proselytizes gasoline-powered vehicles with lower emissions standards, the
global marketplace simply is turning it back on that business plan.
We truly understand why Trump was a
subpar student at Wharton. Understanding the complexities of economics wasn’t
really his thing. Tariffs, which have historically failed to deliver as most
economists will tell you, just don’t work. Simple and make for great slogans.
They just don’t work. When Trump announced massive tariffs on steel and aluminum
imports, he presented American metal workers with a vision of endless
high-paying jobs. They would no longer have to compete with cheap foreign steel
and aluminum, and America would bring those jobs back.
Construction took the first hit, but
that was quickly followed by a realization that any sector of the U.S. economy
that relied on these materials, from construction and car-making to
manufacturing appliances, was going to have to raise prices (or reduce profits)
for their end products. Another motivation for American manufacturers to move
overseas. There was a moment, however brief, when a few aluminum and
steelworkers got a boost, but that did not last long. Without massive new
investment, the overall U.S. steel industry just is not competitive at any
level.
Matt Townsend and Joe Deaux, writing
for the July 9th Los Angeles Times, drill down on the blowback in
the steel industry as a good example: “President Trump’s tariffs on foreign
steel have sped the decline of some of the U.S. mills he vowed to help.
“Exuberance over the levies
dramatically boosted U.S. output just as the global economy was cooling,
undercutting demand. That dropped prices, creating a stark divide between
companies such as Nucor Corp., which uses cheaper-to-run electric-arc furnaces
[pictured above] to recycle scrap into steel products, and those including U.S.
Steel Corp., with more costly legacy blast furnaces.
“Since Trump announced the tariffs 16
months ago, U.S. Steel has lost almost 70% of its market value, or $5.5
billion, and idled two furnaces in mid-June that couldn’t be run profitably at
the lowest prices since 2016. Meanwhile, Nucor, down about 20%, has touted $2.5
billion in expansion projects.
“The president’s actions probably ‘sped
up’ an unavoidable ‘evolution,’ Nucor Chief Executive John Ferriola said in an
interview last month. ‘Are some companies going to suffer? Absolutely. We’ll
see some capacity go away, I’m sure of it.’
“Last July, Trump stood on a
makeshift stage at a U.S. Steel mill in Granite City, Ill., and beamed as
workers cheered the tariffs. At that point, the company had already restarted
one of two blast furnaces at Granite City, and vowed the second would soon be
brought online… ‘Workers are back on the job, and we’re once again pouring new
American steel into the spine of our country,’ Trump said during the hourlong
program. ‘U.S. Steel is back.’
“Since then, though, there’s been a
somewhat different outcome… With the stronger steelmakers aggressively boosting
capacity to grab market share, a dip in demand has left older, more costly
blast furnaces at U.S. Steel and AK Steel Holding Corp. struggling to compete,
even with foreign steel nudged out of the equation.
“‘Be careful what you wish for,’ said
Timna Tanners, an analyst at Bank of America who has dubbed the industry’s push
to add capacity without enough demand ‘Steelmageddon.’ She called it ‘ironic’
that the tariffs are ‘punishing some steel companies.’…
“A spokeswoman at U.S. Steel declined
to comment. AK Steel said its products have little overlap with electric-arc
furnaces, or EAFs, and that the additional capacity will further pressure
imports… As expected, the tariffs reduced steel imports, creating more demand
in 2018 and boosting profits. With that cash in hand, added money from Trump’s
corporate tax cut and confidence that protectionism is here to stay, domestic
producers began adding more capacity than they would have otherwise.
“The problem: This year, with the
global economy cooling, demand — and prices — has fallen. That’s given an added
incentive to EAF companies with superior profit margins and balance sheets to
aggressively grab a bigger share of the market.” Trying to force massive
changes in the marketplace with market-distorting and ill-conceived polices
generally does not work… and Trump’s economic policies have been particularly
ineffective. Consumers pay more, foreign competitors step in to replace what
the United States used to export, and we make enemies with companies and
nations the world over. Think they will forget anytime soon?
I’m
Peter Dekom, and if The Art of the Deal is constantly getting slammed by
the law of unintended consequences, then Donald Trump is indeed the unrivaled
master of that universe.
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