Supporters of Donald Trump tend to excuse his white nationalism, his erratic policymaking, the paucity of his factual knowledge, the whiff of sadism in his treatment of immigrants, the apparent promotion of family business interests…by saying that at least he’s good for the economy. They typically cite low unemployment, GDP growth and the stock market as proof.
Is that correct?
Yes, unemployment is low. Yes, the economy is growing at trend–after receiving a boost from fiscal stimulation (the corporate tax cut) last year. And the stock market did rally on the announcement of Trump’s election victory. (We can quibble about stock market performance: though significantly higher today, the US was pretty much the worst market in the world in 2017, when virtually everybody was up–and more than us; since the 20% boost in US corporate after-tax income it’s up another 10%–much better performance than markets where the tax rate has remained unchanged).
But I think this rationalization, offered typically by wealthy beneficiaries of income tax changes, simply deflects attention away from administration policies that can potentially do severe long-term damage to US prospects. Here are a few:
–tariff wars. Tariffs can be an important way to give industries of the future breathing room to develop, by insulating them from more sophisticated foreign competition. The administration, however, is protecting low value-added manual labor jobs against competition from more efficient firms in China. These tariffs have the perverse effect of retarding manufacturing development here while forcing China to turn to higher value-added work. The latter is a perennial stumbling block for developing countries, so the excuse of Trump tariffs to force the move to higher value-added industry is a rare gift to Beijing.
In addition, the US has been a prime destination for multinationals’ advanced manufacturing because of the large local market and the experienced workforce. The possibility of tariffs–and their apparently unpredictable implementation–has stopped this flow.
–retaliatory tariffs. Tariffs don’t go unanswered. China responded to US levies by shifting purchases of soybeans to Brazil and other countries. As/when tariff wars end, the soybean market will most likely not revert to the status quo ante; once in the door, other, arguably more dependable, suppliers will doubtless retain market share. By the way, when the administration withdrew from the TPP, it also made US soybeans more expensive in another Pacific market, Japan.
–restrictions on immigration. The solution for tech companies who are unable to hire foreign scientists to work in the US because they can’t get visas is to move R&D operations to, say, Canada. Also, the administration’s white supremacism has made foreigners question whether they will be safe in the US as tourists or students, hurting both industries. Chinese citizens may also feel it’s unpatriotic to travel here. A bigger worry: will this force US-based multinationals to begin to regard themselves as no longer American?
–zero/negative interest rates. This is a weird situation in financial markets, which, to my equity-oriented mind, is bound to end badly. Ultra-low rates are also trouble for risk-averse savers, including traditional pension plans. In the US, downward pressure on rates comes both from foreign bond arbitrage and administration demands that the Fed offset tariff damage to growth with looser money policy.
Meanwhile, what’s not being addressed: infrastructure, health care including drug prices, education, retraining displaced workers (where we’re worst in the OECD)
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