NDN Blog

Trump’s Tax Cuts Have Failed To Deliver On Their Promises

Trump’s tax cuts and tariffs have been the pillars of his administration’s economic policy and rhetoric around the economy. We’ve addressed the tariffs earlier, so now we’ll take a closer look into the tax cuts. Taking effect in January of this year, they were promoted as beneficial to long-term economic growth by strengthening the labor market and increasing business investment. Almost a full year into the plan, however, the results have been underwhelming. Each of those mechanisms for boosting growth has fallen flat, while the tax cuts instead have significantly increased the budget deficit and sent interest rates surging.

First, how have the tax cuts affected the labor market? While Trump often touts a record-low unemployment rate, much of that progress was made pre-2018, so it is helpful to look at the change in the trajectory of the labor market since the tax cuts went into effect in January 2018. Since then, the unemployment rate has fallen by an annualized 0.5 percentage points (pp), compared to a decline of 0.6pp in 2017 and an average decline of 0.5pp in 2015-16. Very normal looking. But the unemployment rate doesn’t tell the full story – it can fall based upon people becoming discouraged and leaving the labor force rather than getting jobs, so it’s helpful to also look at prime age labor force participation. Here the case for a tax cut-driven labor market boost looks very poor. Since December 2017, labor force participation has actually fallen by 0.1pp, compared to gains of 0.5pp in 2017 and 0.4pp in 2016. Both unemployment and labor force participation are included in the prime age employment-to-population ratio, making that metric a good barometer for the health of the labor market as a whole. Since December 2017, it has increased by 0.3pp, a much slower growth rate than gains of 1pp in 2017 and 0.7pp in 2016. On Trump’s promise of a higher trajectory for the labor market then, what has been the result? Rather than seeing a surge in job growth, the labor market actually appears to be on a lower growth trend in 2018, even in the midst of the tax cut’s $202 billion fiscal stimulus to the economy this year alone.

Second, how has business investment changed since the tax cut was enacted? Since then, real non-residential fixed investment has increased by a quarterly average of 7% (annualized), only slightly larger than the 6.3% quarterly average increase in 2017. For manufacturers, meanwhile, orders of capital goods have increased 5.5% this year (annualized), much less than the 10.5% growth seen in 2017. So investment growth this year seems to be rather similar to what it was in 2017, a significant blow to Trump’s claims that the tax cut would supercharge investment spending. Taking the non-residential investment number, the dollar value gain from increasing investment growth from 6.3% (in 2017) to 7% (in 2018) is $18.1 billion. Compared to a loss of revenue of $202 billion into the Treasury in 2018 alone, this means that for every $100 in tax cuts, only $9 in new investment spending was created. Even this simple analysis overstates the tax cut’s impact on investment. This impact is very front-loaded (because firms will invest now if they think there will be more demand in the future), so it’s likely that investment growth will slow down now from its already moderate level. Indeed, non-residential investment grew at an annualized rate of only 0.8% in the 3rd quarter of this year, and manufacturer’s orders of capital goods have actually declined for two straight months since July.

So the tax cut has done little to spur the boosts to the labor market and investment spending that Trump argued would lead to stronger long term growth. It is no wonder then that the Congressional Budget Office projects less than stellar growth effects from the tax cut. While it is true that the tax cut will increase growth this year and next, they estimate that it will actually reduce growth each year from 2022 to 2027 (the last year studied). Overall, they estimate that the tax cut will increase real GDP by 0.7% by 2027, equal to about $180 billion out of an estimated GDP of $25 trillion, compared to an increase of $1.8 trillion to the federal debt. As a result, for every $10 of tax cuts, only $1 of new growth will be created, for a multiplier of only 10%. By contrast, economists estimate that the multiplier for infrastructure spending is much higher (with some showing it closer to 80%).

While its benefits to growth, jobs, and investment have been minimal, the costs of the tax cut to the economy are large and will heavily weigh down future prosperity. First, the tax cut has blown a hole into the federal budget. While Trump and Mnuchin have repeatedly said that the tax cut will pay for itself, corporate tax revenue fell $91 billion in 2018 and overall revenue was $202 billion less than the CBO’s pre-tax cut projection. As a result, the entire $113 billion increase in the federal deficit from 2017 to 2018 could have been wiped out if the tax cut hadn’t reduced revenues so significantly. The rapidly rising deficit has made it very challenging to manage the next recession, of which JP Morgan projects there is a 60% chance within the next two years. By 2020, the federal deficit will be 4.6% of GDP (compared to 1.1% in 2007 on the eve of the Great Recession), meaning that there will be little room for fiscal stimulus to boost a recovery.

Second, the tax cut has played an important role in raising interest rates throughout the economy. While the Fed clearly has a significant effect on rates, the tax cuts increased the supply of US government debt (by increasing deficits), causing yields on that debt to increase. Furthermore, the increase in stock prices as a result of increasing corporate profits made bonds less attractive to investors, also causing an increase in yields. As a result, since January, yields on the 10-yr treasury have increased from 2.4% to 3.1%, while the interest rate on an average 30-yr fixed rate mortgage has increased from 4% to 4.9%. This increase in rates will have a major negative effect on the US economy. First, rising rates have been part of the reason why the US stock market has performed so poorly over the last month (with the S&P 500 currently down 1.8% for the year) and why new housing starts have suffered a significant decline, falling 5.3% in September alone. Second, rising rates reduce the disposable incomes of average Americans. The increase in average mortgage rates from 4% to 4.9% means that the average new American homeowner will pay an additional $1,800 per year (compared to a total increase in median household income of $1,000 from 2016 to 2017). Finally, rising rates mean that the government has to pay more interest on the federal debt. By 2028, the CBO estimates that interest payments will cost 3.1% of GDP, greater than the cost of Medicaid and over four-fifths of total US military spending.

Trump’s tax cut was sold as a minimally expensive way to improve America’s long term growth trajectory. Instead, trend growth has barely moved, while the country’s ability to deal with a worsening fiscal outlook and future recessions has been harmed significantly. Looking back, however, these outcomes do not seem surprising. The US economy was close to full employment in December 2017, and US companies had had access to near-zero interest rates to finance investment for almost a decade. It is little wonder, then, that Trump’s tax cut has failed in the promises that he made to Americans.

$38 Million for Beto, and Why It Matters

The big dollars we are seeing Dems raise this cycle isn’t just about anti-Trump sentiment, it is about Dems succeeding in a new, always on media and information landscape.   This election cycle will be the first where more Americans got their news from the Internet than television.  And whereas the broadcast era of politics was about raising money to put on tv in the last few weeks of a race, the new politics of the digital age requires candidates to be generating interest/making connections every day all year long. Beto was not a likely candidate to raise all this money.  He was unknown, from a small and distant Texas media market, and has never led in the polls.  But what he has created is perpetual, compelling values-driven digital media – viral videos, social media checkins; and he has used the rally format Trump used to build his lists and grow a powerful support network. It is a model all Democrats should study and learn from. 

While not at the same scale, the DCCC made a commitment early in 2017 to ensure its candidates used modern internet based fundraising techniques – think Dean, Obama – to give them a shot to tap into the energy out there.  And as this story in the Washington Monthly suggests, it worked.   The Democrat’s well funded candidates have been instrumental in giving the Democrats a real shot at winning the House; but by expanding the battlefield to twice as many races as the Democrats competed in in 2016, it has also lessened the extraordinary GOP fundraising advantage this cycle.  See this new tweet from Nate Silver for more data on just how extraordinarily successful this strategy has been. 

I will have more to say in the coming days about the struggle Democrats have had in transitioning to an "always on" post-television media era, an era of Trump, social media and a 24/7/365 debate about our future. But one area I've grown concerned about is whose job is it exactly in the center-left ecosystem to take on Trump directly, both in the final days of the election and next year? Imagine if $50m had been directed against him in recent months.....do we really believe he would be at 42% approval given what is known? And would have it made a difference in the coming elections? Of course it would have.  No candidate in modern American history has developed a more powerful set of negatives to be used against them as Donald Trump has.  Time now for voters to be reminded of them.  It's the basic blocking and tackling of politics, something I address in this new thread.  The new WSJ/NBC poll out on Sunday has a lot of good news for Democrats except this - Trump is now at 47/49 approval, his best showing in many many months in this poll. 

This issue of the Democratic Party's understanding (or lack of) of the modern media landscape was at the core of debate over the debates in 2015-2016.  At the end of the day a badly designed debate schedule allowed the GOP candidates to be seen by 100 million peple than the Democratic candidates.  In the fall of 2015 I wrote: "Regardless of the virtue of the original DNC debate strategy, the RNC has produced a far better approach that will guarantee their candidates hundreds of millions of more impressions.  This gap is so large that it could sway the outcome of a very close race, and the DNC should take steps to close this gap in the weeks ahead."  Something it never really did. 

The Washington Post's Michael Scherer quotes this portion of my analysis in a new story about the RNC and its 2019 strategy. 

Are We Better Off Under Trump? - A Series

In a new series challenging Trump's economic policy, we argue that Americans are not better off after almost two years of the Trump administration. Job and wage growth is down, the trade and budget deficits have surged, and healthcare access has declined for the middle class and poor. Further, the decline in export opportunities for US businesses and significant deterioration in the fiscal sustainability of the government mean that Trump's policies will harm Americans for years to come. 

Trump's Tax Cuts Have Failed To Deliver On Their Promises - 10/30/18 - Trump’s tax cut promised to boost growth by strengthening the labor market and business investment, but today both metrics look very similar to their pre-tax cut trend. Instead, the deficit has surged to unprecedented levels and rapidly increasing interest rates are hurting ordinary Americans.  

Are We Better Off Under Trump? Charts, Graphs, Data - 10/25/18 - After Trump's first two years, jobs and income growth is slower, while the budget and trade deficits have surged. This presentation highlights the data behind NDN's argument that Americans are not better off under Trump.

Are We Better Off Under Trump? The Short Answer Is No - 10/18/18 - Most measures of the US economy are worse today than when Trump took office. Worse still, the President’s policies have made it very challenging to manage the next recession or global economic downturn.

Challenging Trump's Tariffs - An Ongoing Series - 10/12/18 - In a new series challenging Trump's tariffs, we argue that the President's trade policy is illegal, recklessly ignorant, damaging to the US economy, and historically unpopular. Congress must step up and rescind them this fall.

Aditional writings from Rob Shapiro:

The Latest Outlook On The Economy: Another Canary Swoons - 10/24/18 - There are growing signals of a possible recession 10 to 15 months from now - a flattened yield curve, weak investment growth, and stagnant productivity. On top of that, big drops in new home sales threaten to throw the construction industry, and the 7 million workers it employs, into a downward spiral. 

Don't Be Fooled: Working Americans Are Worse Off Under Trump - 9/30/18 - The typical working American's earnings, when properly measured, have declined during the Trump administration. It is no wonder, then, that Americans have been unmoved by economic news over the past two years.

Are We Better Off Under Trump? - Charts, Graphs, Data

Last week, NDN produced an analysis arguing that Americans are not better off after two years of the Trump administration. We took a look at jobs and income growth, the level of the budget and trade deficits, and metrics affecting the lives of everyday Americans such as mortgage rates, healthcare insurance, and gas prices, and concluded that most measurements showed a weakening economy compared to the one Trump inherited in early 2017. 

The attached presentation takes this argument and visualizes the data that backs it up. Compared to the last two years of Obama's presidency, job growth in 2017 and 2018 has not been very impressive, even in the midst of significant fiscal stimulus.

Furthermore, deficits have surged under Trump and are projected to continue growing as a result of the President's tax cuts, which reduced revenue by $200 billion in 2018 alone.

To find other data on the Trump economy, click on the presentation slides below.

Some Thoughts About The Caravan

This essay was originally published on the website Medium.

Looking back, everyone involved in this Caravan story has to wonder how it led to the President declaring a national security emergency. It is about 7,000 poor, unarmed, mostly Honduran Central Americans desperately attempting to escape worsening economic and political conditions. It includes about 2,000 kids. As of today, October 23rd, the caravan is about 1,000 miles away from the closest part of the US, and at current rates will make it to the US border in early to mid-December. That is if somehow they can keep themselves fed, clothed, housed, and safe during this grueling trek north. No one is funding this journey, and recent news reports suggest many are tired and close to giving up. But what keeps them going of course is that in their minds they can’t go home, and have nowhere else to go.

A terrific Daily Beast story today details how this all started. Desperate conditions at home, and mistaken news reports that there was funding to send a caravan north. It would allow people to avoid paying $7,000 for a coyote, and there would be physical safety in numbers. Perhaps we will learn that some more nefarious plot was behind this unusual event but as someone who has studied these matters for a long time, this is all very believable. So today what has been described as a dangerous mob in right-wing media here in the US may very soon become a tragic humanitarian disaster as they run out of food and shelter far away from home.

What has been most extraordinary about this unfolding tragedy is the reaction of the President of the United States. Egged on by hysterical right-wing media, the President himself became hysterical and declared this far-away march of some of the hemisphere’s poorest people a national security emergency for the United States of America. To make it all the more threatening, the President claimed, without evidence, that terrorists and violent gang members had joined the caravan and were intending to use it to sneak into the United States (today he admitted he made up the Middle Easterner thing). The President threatened to cut off aid to the countries of the region if this Caravan kept going. The aid he was referring to largely goes to prevent further erosion of regional security so the President was essentially threatening to force the region into even greater chaos and weakening our own security along the way. Remarkably the Secretary of State and the Vice President echoed these claims in the last 24 hours. And there we had it — the most powerful nation in the world, the winners of World Wars and Cold Wars, was now officially terrified and mobilizing its military, financial, diplomatic, and homeland security resources to repel an “invasion” of a few thousand ragged, unarmed Central Americans far away from the US homeland and weeks away from arriving at the border itself. It has felt far more Monty Python than John Wayne.

Flows of authorized immigrants into US fraction of what it was — system has capacity to manage surges

For context, it has to be noted that the flow of unauthorized immigrants into the United States is a fraction of what it was 10–15 years ago, and even this year’s flow has been within recent norms. The President had already declared a national emergency earlier this year and added National Guard troops and military judges to the border region to help provide additional capacity to manage what was in fact a small and not historically significant increase in border arrivals. So the boy had cried wolf once, and when the flow didn’t decrease, the Administration moved on to its infamous “zero tolerance,” kids in cages strategy; a strategy voided by federal courts a few months ago. Not a whole lot of winning for the President on his immigration strategy these last two years.

2018 inline with previous years — not a crisis

So while this whole Caravan thing both feels and is absurd, it is now part of the political discourse in these closing days of the 2018 elections and Democrats need to make clear where they stand. As an old Clinton War Room guy I firmly believe that any attack must be challenged or it sticks. Democrats are being attacked daily by the President for something they have not done, and need to challenge both the President’s inaccurate story about immigration and its impact on America, and the President’s misguided policies to address an “immigration crisis” which never existed. So, in short, I think Democratic leaders should do three things:

Address Worsening Conditions in Central America — Democrats should make clear they know that the worsening economic and security situation in Central America is a problem which needs to be addressed by the next Congress. Unauthorized flows like the Caravan are wrong, and we need to find a way to keep people at home and to honor the legal immigration system in place today. Whatever plan we come up with will have be developed with our Southern neighbors and both parties and chambers in Congress. It will take work over many months to do something lasting and effective. Fox fueled fiats from an ill-informed President are making finding lasting solutions far harder, not easier.

Put Comprehensive Immigration Reform back on the table — Democrats should reaffirm their commitment to the bi-partisan and thoughtful McCain/Kennedy, Gang of 8 framework and offer to enter into talks with the President and the Republicans about a bi-partisan reform package. They should be open to reducing the # of green cards issued for a time if we can legalize millions of undocumented immigrants already living and working here.

Offer Ideas for Smart, Effective and Humane Reform Of Our Immigration Enforcement System — At a rhetorical and policy level, Democrats have to be more forceful in talking about how to make border and immigration enforcement better, more effective, and more humane. In our book President Obama did a far better job at managing our border and domestic enforcement system than many have given him credit for. DHS and ICE can certainly be improved, but talks of abolishing it are silly and should be rejected by responsible leaders in the days ahead. Creating a path for legalization — and I hope citizenship — for the 11m already here require a big rethink of our entire enforcement system.

So even if the Caravan disperses in the coming days, and this “urgent threat” is removed from the political debate, the underlying issues raised by the Caravan remain. The immigration status quo is unacceptable, and has been for a long time. Democrats have been trying to improve and modernize our approach to immigration, and address many of the problems that have surfaced here, for 13 years. We passed smart bi-partisan bills through the Senate twice, only to have them blocked each time by a reactionary Republican House leadership. If the Democrats control the House next year we will have the opportunity to do something truly meaningful on immigration; something which can grow our economy, cut a spiraling deficit, and humanely resolve one of the most contentious political issues in the nation today. The President sure does seem to want to do something — let’s challenge him to use his vaunted deal making skills and do right by the American people and our close neighbors to the South. It is time now.

Are We Better Off Under Trump? The Short Answer is No

This piece follows articles by Simon Rosenberg on NDN.org and Rob Shapiro in The Washington Post that take a look at the same issue in slightly different ways. You can find the data and charts that accompany this piece here.

When Donald Trump entered office the American economy had recovered from the Great Recession and just seen two very strong years.  While the economy was very good in Obama’s second term, it was particularly good in 2015-2016 – strong job and wage growth, a booming stock market, low interest rates, low energy prices, a big decline in the uninsured rate, lower than usual health care cost increases, and a rapidly declining annual deficit.   Despite Trump’s “carnage” rhetoric, the economy was in good shape in late 2016 with no real dark clouds on the horizon.

Since assuming office the President aggressively implemented a very different approach than his predecessor on economic and fiscal matters, trade, health care, and many other issues.  Enough time has passed to evaluate whether this new Trumpian approach has worked, and made the good economy he inherited better.   Let’s start with the negative side of the ledger:

Job, wage, and income growth have slowed – In 2015 and 2016, monthly job growth averaged 211,000 jobs under Obama.  Under Trump, monthly job growth has averaged 193,000 jobs, a decline of almost 10%.  

In 2015 and 2016, median household income increased by 5.2% and 3.1%. In 2017 median household income increased by only 1.8%. Similarly, real wages for all workers increased by an annual average of 1.6% in 2015-16.   In 2017-18 they have increased by an average of only 0.5%.    

The annual deficit has exploded - During Obama’s second term, the deficit averaged 3.09% of GDP while under Trump it has averaged 3.66%. Furthermore, the CBO projects that the deficit will surge to 4.6% of GDP in 2019 and 2020. According to a new study, all of that increase stems from Trump’s tax cut, which makes sense given that it is unusual that the deficit would increase significantly while the economy is close to full employment.

Gas prices are rising - The average gas price in 2015 and 2016 was $2.29/gallon.  It rose to $2.42/gallon in 2017 and $2.88/gallon in 2018.  While many factors affect gas prices, the President’s renewed sanctions on Iran have played a significant role in recent increases.

Interest rates are rising -. Since Trump took office the yield on the benchmark 10-yr US Treasury has increased from 2.45% to 3.16%. This 0.71 percentage point (pp) increase compares to a gain of only 0.23pp in Obama’s last two years in office. The rate on a standard 30-year fixed mortgage has increased by 0.58pp under Trump, after increasing only 0.45pp in Obama’s last two years.  

Interest rates and gas prices are at least 25% higher than when Trump took office, making every day things far more expensive for the American people.  Credit card monthly balances, car loans, mortgages, and driving to work all cost significantly more now under Trump.  For those in the middle class and those striving to get there, this is no small thing. 

The trade deficit is widening – The trade deficit averaged $389 billion in Obama’s second term.  In 2017 it hit $449 billion, the largest such deficit since 2008. The 2018 numbers so far are even higher than 2017.    

Tariffs are hurting American businesses and consumers – There is a great deal of data to back this up but we will share just a few of the most important.  In the auto industry, estimates are that Trump’s tariffs on Chinese vehicles and auto parts will increase the price of a typical vehicle by $4,400 and eliminate 715,000 jobs. Farmers, meanwhile, will lose over $12 billion in earnings this year alone as a result of Trump’s trade policies.  Estimates suggest the President’s steel and aluminum tariffs alone will cause the loss of another 179,000 jobs in manufacturing and services. It is little wonder, then, that Trump’s trade policy is historically unpopular, with voters opposing his tariffs 46-28 in Pennsylvania, 41-29 in Missouri, and 47-39 in Wisconsin.

The decline in the uninsured rate has slowed, for some it is increasing now - Under Obama, the uninsured rate steadily declined, with drops of 2.9pp in 2014, 1.3pp in 2015, and 0.3pp in 2016. This progress abruptly stopped under Trump, with the uninsured rate remaining at 8.8% in 2017, representing the first year since 2010 that the uninsured rate had not fallen. Furthermore, 2017 was the first year since 2010 that the uninsured rate gap between those making over $100,000/year and those making under $100,000/year actually increased. In 2017, higher income earners (over $100,000/year) saw a decrease in their uninsured rate by 0.2pp, while lower income earners (under $100,000/year) saw an increase in their uninsured rate by 0.3pp. 

Rising uninsured rates for those struggling to get by will of course also make it far harder to tackle the opioid epidemic. In 2017, over 72,000 people died as a result of the opioid crisis, compared to 64,000 in 2016 and 52,000 in 2015. Meanwhile, evidence suggests that expansion of healthcare access reduces drug overdose deaths.

Even coal production has declined - Even US coal production continues to stay at record-low levels under Trump. During Obama’s second term, annual coal production averaged 903 million short tons.  In 2017 coal production was only 774 million short tons and estimated production in 2018 will be even less, coming in at 741 million short tons.

To be fair, not everything is worse today.  Let’s look at the positive side of the economic ledger:

GDP growth has increased - During Obama’s second term, annual real GDP growth averaged 2.3% (and only 2% in 2015-16). In 2017, however, real growth increased by 2.6% and the CBO projects that it will increase by 3.1% in 2018. As a result, growth under Trump in 2017-18 will average 2.85% compared to the 2.3% it averaged in 2013-16 under Obama.

However, when put into the context of the significant fiscal stimulus that Trump has undertaken, the level of GDP growth we’ve experienced may actually deserve to sit on the negative side of the balance sheet.  The CBO estimates that Trump’s tax cut will increase the federal debt by $1.8 trillion by 2028. They also estimate that the tax cut will increase real GDP by 0.7% by 2028, equal to about $180 billion out of an estimated GDP of $25 trillion. As a result, for every $10 of tax cuts, only $1 of new growth will be created, for a multiplier of only 10%. By contrast, economists estimate that the multiplier for infrastructure spending is closer to 80%.  In other words the stimulus was badly designed and is providing the American people a very low rate of return. 

So while GDP is up a bit under Trump this growth is not providing the kind of across the board benefits we would expect to see – wages and job growth haven’t picked up – and it has come at the cost of the fiscal integrity of the US. 

The stock market has made strong gains, but not as strong as Clinton and Obama - Since Trump took office, the S&P 500 has gained almost 24%, representing wealth creation of over $5.3 trillion. Similar to the increase in GDP growth, however, context makes this metric less impressive. During Obama’s second term in office, the S&P 500 increased by 57%, an average annual increase of 14.3% compared to Trump’s average increase of 13.6%. During Clinton’s second term, furthermore, the S&P 500 increased by 76.5%, an annual increase of 19.1%.

Like with Trump’s growth numbers, the modest increase in the stock market we’ve seen is actually disappointing given that virtually all of the stimulus went to American companies and the investor class. 

So are we better off? Most measures of the US economy are worse today than when Trump took office.  Job, income, and wage growth all have slowed, while costs for everyday things are rising dramatically.   The modest increases we’ve seen in GDP and the stock market have come at an extraordinary cost, as the 2017 tax bill provided a very badly designed and inefficient stimulus which simply isn’t providing the kind of returns the American people should have expected. 

Worse still, the President’s policies have made it very challenging to manage a recession or global economic event if it were to come.  By 2020, the federal deficit will be 4.6% of GDP (compared to 1.1% in 2007 on the eve of the Great Recession), meaning that there will be little room for fiscal stimulus to boost a recovery. Furthermore, our economic and diplomatic relations with the most advanced economies in the world have been frayed through Trump’s aggressive tactics, and his economic team is among the weakest in modern US history.  Finally, Trump’s economic policy has worsened the long-term future of the country. By the time the next presidential term starts in 2021, the CBO estimates that GDP growth will be 1.5% (compared to 2.3% in 2013-16), interest rates on new debt will be 4.1% (compared to 2.1% in 2013-16), and the deficit will be 4.9% of GDP (compared to 3.1% in 2013-16).  

So, are we better off under Trump? Based on our analysis, we think the answer is no.

Challenging Trump's Tariffs - An Ongoing Series

In a new series challenging Trump's tariffs, we argue that the President's trade policy is illegal, recklessly ignorant, damaging to the US economy, and historically unpopular. Congress must step up and rescind the tariffs this fall.

Iowa, Trump, and the Politics of Globalization/Tariffs - 10/12/18 - Trump’s trade policies are hurting the Iowa economy. His tariffs are unpopular there, and his party is performing badly in the fall elections. Some thoughts on what this means for the Democratic presidential race starting soon. 

A Quick Take on NAFTA 2.0 - 10/1/18 - In a new analysis, Chris Taylor argues that NAFTA 2.0 is a largely cosmetic revision to its predecessor that borrows heavily from Obama’s TPP.

Daily Trade Polling Update - 9/28/18 - Recent polling on Trump's tariffs and trade policy. All in one place. Updated daily. 

Whatever Happens With Mexico, Trump’s Trade Policies Are Harmful And Need To Be More Aggressively Challenged - 8/29/18 - In a detailed new analysis, NDN's Chris Taylor explains why Trump's trade policies are harming the US, and need to be more aggressively challenged.

Trump's Tariffs Will Do Lasting Economic Damage If Not Opposed - 8/14/18 - Trump's trade policy is enacting large costs onto average American workers that will be felt for generations. Congress must act to rescind these tariffs, before US manufacturers and farmers permanently lose out on much of global consumer demand. 

On Tariffs, Trump's Reckless Ignorance Can No Longer Go Unchallenged - 8/8/18 - To a shocking degree, Trump doesn't understand how trade and tariffs work - and they are illegal to boot. Congress should rescind them this fall.

Trump's Tariffs Are Illegal, And Should Be Rescinded - 8/3/18 - Trump’s trade war uses the false pretense of “national security” to sidestep the checks and balances of the legislative branch. Independent of their ideological position on trade, Congress must stand up to this creeping authoritarianism.

Related readings:

Democrats Need To Have A Big Conversation About Trade - 5/16/18 - Recent Pew polls show Democratic voters are overwhelmingly supportive of free trade. Simon takes a look at what this means for the Party.

Trump's Iran Deal Withdrawal is an Arrogant Rejection of the Postwar System America Built - 5/10/18 - In a new column, Simon says Congress must begin debating Trump’s sustained effort to undermine the post WWII order. 

An Enduring Legacy: The Democratic Party and Free and Open Trade - 1/21/14 - The global system created by Presidents FDR and Truman has done more to create opportunity, reduce poverty and advance democracy than perhaps any other policies in history. 

Iowa, Trump, and Politics of Globalization/Tariffs

(This is the seventh article in a series produced by NDN challenging Trump’s tariffs)

From 2012 to 2016, Iowa shifted a net 15 percentage points from Obama to Trump, the largest such shift of any state in the nation. As we look to the upcoming midterms, however, the politics of the state seem to have changed significantly. Similar to the other Midwestern states, the Republican Party seems to be taking a hit, and the House and Gubernatorial races in Iowa appear to be strong pick-up opportunities for Democrats. We don’t know exactly why this shift has occurred, but part of the reason seems to be trade. And for good reason. NDN sees three major motivations for why Iowans would oppose Trump’s protectionist trade policies.

Globalization has greatly benefited Iowa

The new era of globalization that began in 1989 and saw the US become more economically integrated with China, Mexico, Canada, and the EU (among others) has been very good for Iowans. The state exported $13.2 billion in 2017, or 7% of its GDP, and foreign trade supported 450,000 jobs, equal to 20% of all jobs in the state. Rather than experience a decline, trade-related jobs actually grew 4.5 times faster than total employment in Iowa in 2004-2014. Furthermore, the trade deals that the President has slammed the most, the original NAFTA and agreements with China and the EU, have provided the most jobs in the state. Canada is the market for 31% of Iowa’s exports, while Mexico accounts for 17%, China 4%, and Germany 3%.

The result of this global integration has been a very strong economy. From 2011 to 2017, Iowa’s GDP per capita increased by 11.3%, faster than the 8.3% registered by the country as a whole. Furthermore, the state’s current unemployment rate is 2nd lowest in the nation at 2.5%, significantly lower than the 3.7% national unemployment rate and the 4% rate that economists consider to be full employment. Finally, Iowa continues to be a national leader in poverty reduction, having the 7th lowest poverty rate in the country at 9.4% in 2017, compared to a national average of 12.5%. While Trump constantly speaks of trade creating economic “carnage” across the nation, Iowa instead has developed a prosperous economy on the back of foreign integration. In fact, Iowa has a large trade surplus of $4.2 billion, further illustrating that foreign competitors haven’t overwhelmed Iowan industry but rather have complemented it.

Trump’s trade policy has damaged the state’s economy

Trump’s trade wars have caused serious disruption to Iowa’s economy, and risk causing an outright recession in the state if continued. Retaliatory tariffs on Iowa’s major exports, in response to Trump’s imposition of wide-ranging tariffs, have significantly reduced demand for those exports, resulting in large declines in the prices received by farmers and workers throughout the state. Soybeans, responsible for 24% of Iowa’s exports, have seen their price decline by 16% in 2018 alone. Pork and corn, responsible for 15% and 13% of total exports, have seen their prices decline by 15%. The overall result has been a large decline in income earned by exporters throughout the state. A new study from Iowa State University estimates that the trade wars could cause an overall income decline of $2.2 billion in Iowa, equal to 1.2% of the state’s GDP. Even the Trump administration has admitted its policies are harming incomes across the state, as it has already provided almost $550 million in bailouts to farmers hurt by the tariffs.

While Trump has touted the new NAFTA agreement as a breakthrough for Iowa’s farmers, new market access to the Canadian dairy market totals only $70 million for all US exporters, an insignificant amount given losses of up to $40 billion to American exporters as a whole. Furthermore, the loss of foreign market access by Iowan workers is not likely to be short-term in nature, regardless of when the trade war is ended. Major competitors to Iowan farmers, predominately Brazil and Canada, are taking advantage of tariffs on US exports to take market share from Iowans. Brazilian soybean exports to China have jumped 22% in 2018 alone, as exports from Iowa dry up. As a result, even if the tariffs are rescinded, supply chains will have refocused to exclude American, and Iowan, exporters for the long run.

Iowans recognize these facts and strongly oppose Trump’s tariffs

Iowans heavily oppose Trump’s trade policy in state-wide polling, and have punished Republican incumbents running in the state. Republican incumbents in the 1st and 3rd House Districts are trailing their Democratic opponents while running 22 and 15 points behind their own 2016 performances, while the incumbent Republican Governor is also losing while running 26 points behind the GOP’s performance in the 2014 governor’s race. This follows a clear trend, previously discussed by my colleague Simon Rosenberg, of Trump significantly underperforming his 2016 numbers throughout the Midwest.

While we don’t know the exact causal effect of the tariffs on this shift, it has to be noted that Trump’s trade policy is significantly underwater in the state. Across Iowa as a whole in September, 52% of likely voters thought that Trump’s tariffs would be bad for Iowa’s economy while only 24% said they would be good.  In the key battleground district of Iowa 1, meanwhile, likely voters opposed Trump’s tariffs on steel and aluminum by a 55-36 margin. This follows other polling in the region that found Trump’s tariffs opposed 41-26 in Missouri, 46-28 in Pennsylvania, and 57-31 in Wisconsin. Even though Iowans swung so strongly towards Trump in 2016, they realize the positive impact of foreign trade on the state, and are unwilling to support Trump’s reckless trade policies.

Looking ahead to the 2020 Democratic primary in Iowa

The economic and political realities described here raise some interesting questions about how the Democratic presidential candidates are going to address these issues in the coming months. The state’s direct ties to foreign trade, the significant decline in Iowan agricultural exports as a result of Trump’s tariffs, and their unpopularity will make it very difficult for Democrats to embrace Trump’s tariff and trade policies, something Democrats have done in some states this year. In fact, it would be appear, based on this analysis, that it would benefit Democrats to clearly attack the tariffs as policies hurting everyday Iowans. 

How Democrats play the trade issue in the Presidential race next year will be fascinating to watch. Democratic voters overwhelmingly support free trade. Trump’s economic policies, including his tariff policies, are weakening both the US and global economies. His protectionist policies are deeply unpopular, and his party is about to suffer huge losses in the Rustbelt and Midwest. Given all this, the Democratic presidential candidates would be smart to study these issues hard, and make sure they don’t somehow align themselves with policies which are contributing to the unraveling of the strong recovery Trump inherited and which are doing direct harm to American businesses and workers across the country. 

Election Day 2018 - Reflections and Predictions

This analysis was originally posted on Friday, October 12th.  It will be updated as things warrant over the final few weeks of the election.  Latest update - Election Day, 7am.  And be sure to check out Simon's 2018 election predictions, as submitted Monday am to The Hill.  He predicts Dems pick up 40 House seats, get to 50 in the Senate, rout the Rs in the Rustbelt/Midwest and an already deeply unpopular President will sustain a significant political blow.  

Early Vote Sets Records - Professor Michael McDonald looks at the huge early vote and mail ballot returns and thinks turnout this election year could be as high as 44-45%, way up from the 36% we saw in 2014.  Remarkably 30 states plus DC have already hit their 2014 early vote numbers and McDonald thinks all 50 states will outperform their 2014 ev totals. Let's hope these trends continue through election day - there would be much to celebrate on election night if this is the case.  Remarkably 3 states have already passed their entire 2014 totals (early + election day) - AZ, NV and TX. 

The Hill's Reid Wilson reports that voting seems to be up for all age cohorts, "but turnout has increased the most among younger voters, minorities and people who rarely or never vote. Among voters aged 18-29, turnout is up in 39 of 41 states for which data is available, said John Della Volpe, who directs polling for Harvard University's Institute of Politics. For voters aged 30-39, turnout is up in all 41 states where data is available. As a consequence, the 2018 electorate appears likely to be significantly younger and more diverse than the electorate that voted four years ago — both good signs for Democratic candidates."

And to be clear this increased turnout is as much as about well-funded Democratic campaigns touching far more voters more effectively than in recent years as it is about the fear of Trump.  One of the big stories of 2018 is the Democrats' finally bringing of Presidential level tactical sophistication to Congressional and downballot races - and it marks a huge permanent shift in American politics.  I dive a bit deeper into this issue in a related piece, "38 Million for Beto and Why It Matters." 

Did Trump Blow His Election Close? – In the weeks after the Kavanaugh fiasco, public sentiment stablized with Dems leading the genenic ballot by 8 to 9 points, and Trump's approval in a vastly improved place, coming in between -9 or -10 (had been -14 Labor Day weekend).  Nate Silver offered a very good analysis explaining why Trump's improved standing didn't translate into gains for GOP candidates, adding "Democrats have a generic ballot lead of 8.5 or 9 points. Not sure if people realize how large that is. A bit larger than the 1994 and 2010 waves, when the GOP won the popular vote by ~7 points each time. Similar to 2006, when Dems won by 8.” This election day afternoon Nate has it at 8.7. 

The NYT/Siena/Nate Cohn's House polling project continued to find good news for Democrats all the way through election day. Hard to find many GOPers in competitive races these last few weeks over 45/46, and we know from history that members of the incumbent party in the low to mid 40s a week out seldom win.  Even the Senate has settled down in a relatively postiive place for Dems. Using 538 Democratic candidates lead in AZ, FL and MO and NV remains a toss up (see here for how polls often understate Dem performance in NV, and the early vote is coming in very high for Democrats).  Democrats prevail in these 4 races it will be 50D/49R on election night, with control of the Senate coming down to a December special election in Mississippi. 

What should be worrying for the GOP is that the horrific spate of right wing domestic terror we've seen in recent days may be eroding, deservedly, their already weakened position. Last Tuesday's Gallup's weekly track had Trump going from -6 to -14 (44/50 to 40/54).  538's adjusted polling tool has Trump slipping from -8.9 to to between -10.8 to -11.4 in the past two weeks. The polls in the field after the Florida bomber was caught has Trump's approval at net negative 10, 11, 12, 13, 13, 14, 14, 15, 15, 16.  While this may be more noise than signal even a Trumpian fade of 2-3 points could make a big difference in the many close races across the country.  It is something to watch. 

Recent moves by the GOP House campaign committee provide further evidence the GOP position is eroding, as they have started to campaign and advertise for candidates who were thought to be safe.  Adding to the GOP challenge, Democrats have more money than ever before to make their closing arguments, and the failure of the GOP tax cut and the GOP's many years of assault on the health care of working people has given Democrats an awful lot of material to work with in these closing days.

One of the great questions of this election will be - did Trump blow it by focusing in the last few weeks on the fictional threat of the caravan rather than the economy? New reporting makes it clear the call was his (Jeff Zeleny's is perhaps the best take, more here from the WSJ).  The President admitted in an interview last night hat he needs "to soften his tone." Gaslighting? Or tactic admission his martial border close to a series of domestic terror attacks pushed away far more voters than it excited? To have your closing ad pulled down the day before the election for being too racist, even by Fox, should have been giving the President reason to wonder whether he blew it down the stretch; as would the lack of clear improvement for the GOP anyhwere in the country in the final two weeks, and very high turnout and improved Democratic numbers in heavily Hispanic parts of the country like AZ, CA, FL, NV and TX. 

Trump/GOP Weakness in the Rustbelt, Midwest, 2020 States – Throughout these late ups and downs one thing has stayed constant - a remarkable GOP weakness in the parts of the country which responded well to Trump and are critical for his re-election in 2020.  Let's drill down a bit:

GOP struggling in battleground governors races – At this point GOP gubernatorial candidates do not have a lead outside of the margin of error or even a clear lead in FL, GA, PA, OH, MN, MI, WI, IA and NV.  While a few GOPers will make it through this structural weakness in these key states has to be a big concern for Trump and the RNC heading into 2020. 

GOP Rustbelt wipeout -  Rs head into election day trailing in every competitive statewide race in IA, WI, IN, MN, MI, OH and PA.  Dems lead by 10 or more (!) in the PA Gov and Sen, OH Senate, MI Gov and Sen, MN Gov and Sen (2) and WI Sen.  that the GOP could have not been competitive in this many races in these critical battleground states, icludes 4 Trump won, remains just mindboggling. 

Part of what is driving this newfound GOP weakness is this region the very significant unpopularity of Trump’s tariffs, which remain among the most unpopular of all Trump’s policy initiatives. NDN's Chris Taylor has a smart new piece diving a bit deeper into this important dynamic, and another new analysis which found by almost every measure the economy is worse today than it was when Trump took office.  Critical the 2020 Dems study these economic trends carefully as the Presidential gears up. 

Domestic Terrorism and the 2018 Election - As the nation attempts to recover from a series of domestic terror incidents, time now to discuss and confront our most significant domestic security threat - rising right wing political violence.  I speak to this need in this Washington Post article and this new Twitter thread.  But more than anything Donald Trump should be a President these last few weeks, stood down from his absurd wag-the-dog caravan charade, and focused the nation's attention on combatting rising right wing political violence here at home and protecting Tuesday's elections from interference of any kind.  I know, it didn't happen. Rather, as we discuss above, to close the election with explicit calls for violence, to "fight back" against his political opponents - calls which I worry aren't really about winning the election but about something far more sinister. 

A New and Exciting Democratic Party Is Emerging - Many new Democratic stars have emerged since Trump was elected - Kamala Harris, Andrew Gillum, Beto O'Rourke, Mikie Sherill, Stacy Abrams....the list goes on and on.  To me what we are seeing emerge is a whole set of leaders who will guide and direct the next Democratic Party, a post Clinton/Obama, a post Trump party.  This is my 14th election day as a Democratic operative and strategist, and I will say I have never seen such a talented and capable crop of candidates running and winning across the country.  The future of the Party feels like it is in very good hands.   

For those of us in DC I think this incoming House freshman class has the opportunity to be an historic class.  The DCCC recruited an extraordinarily accomplished and compelling group this cycle, and it is the deepest and most talented class I've seen since I came to Washington (the 1996 class was pretty great). I discuss the potential of this class in a smart new piece by Ron Brownstein and counsel everyone to be very slow at assigning ideological labels other than pragmatist to many of these new arrivals. 

Having said all that, I think there are three groups arriving in January with the power to shape and influence the direction of the caucus for years to come:

Women - Women brought energy and passion to our politics this cycle, huge number of votes and an historic number of women ran and won/will win their elections.  We will have better numbers in the next few days but expect this new dynamic to be central to everything that happens in the Democratic Party in the House and more broadly across the Party in the coming years.

Patriots/National Security Democrats - Next will be a very large group of veterans and former national security officials. Joining current Members like Seth Moulton, Stephanie Murphy, Conor Lamb and Ruben Gallego, this group could become a deeply consequential one, forging American foreign and security policy for decades to come.  To me this group feels like a the type  of Democrat we haven't seen in a long time - a pre Vietnam War Democrat, a WW II and Cold War Democrats, pragmatic patriots, similar to the class full of veterans which came in 1946 after the war to serve their country again but in another way. 

The reason this new type of Democrat will be with us for some time is just the sheer number of Americans who have served in the war on terror and other military conflicts over the past 17 years.  Many of these young soldiers and security officials have now reached the age and a stage in their life where running for office became an option for them.  This is why I think this a permanent trend at least for the next 10-15 years, and one of those trends which makes the emerging Democratic Party very different from the Party of Clinton and Obama.

NDN has been writing and speaking for some time now about the Democratic Party's very real opportunity to reclaim "patriotism" from the right.  Let us hope this will be the case in the years to come.

The Democratic Socialists - While there is no doubt this new sensibility has resonance in the center-left family, it remains to be seen how powerful it will be next year.  This movement has a compelling, emerging champion in future Rep. Ocasio-Cortez, but there just aren't that many candidates running this cycle with this label as their primary affiliation.  The first two groups we discussed - women and the national secrurity Dems - will likely be much larger in number in the Senate and House next year.  Regardless of numbers, expect this new post-Bernie tribe to be loud and influential. 

While some of these new Members will get absorbed into existing groups like the New Dems, Blue Dogs, Future Forum, Hispanic/Black/AAPI Caucuses, my sense is that this class is going to be so large and its sensibilities new enough that it will itself become a force perhaps equal to any of these existing factions.  Will be fascinating to watch.  And watch this new video which brings together, powerfully, two of these trends - women and national security experience.  Hard to watch this and not sense the emergence of a new post-Clinton, post-Obama Democratic Party. 

More - If interested feel free to review my 2014 post-election analysis, "A Wake-Up Call for Democrats," and the one from 2016, "A New Generation of Democrats Will Have to Rise." I am also proud to be a two time winner of The Hill's Election Prediction contest, and look forward to competing again this year. 

Behind a Record Unemployment Rate, Warning Signs for Job Growth

In September, the labor market had many of the signs of a booming economy. The unemployment rate broke a 49-year record by falling to 3.7%, while weekly jobless claims also surpassed a 49-year record by hitting 201,000. However, much less attention has been paid to the continued poor performance of two alternative metrics: the labor force participation rate and the employment-to-population ratio.

In September, prime-age labor force participation declined for a 2nd straight month, meaning that participation is actually at a lower level today than in December 2017 (and at the same level as in September 2017). Furthermore, the prime-age employment-to-population ratio remained the same this month after a decline in August, and it is now at the same level that it was in February 2018.

What are we to make of the conflicting stories offered by these metrics? Importantly, the unemployment rate and jobless claims ignore workers who are outside of the labor force, while the labor force participation rate doesn’t take into account those workers inside the labor force. The employment-to-population rate, by contrast, includes workers both inside and outside of the labor force, and is thus the most complete metric to use.

Behind a record-breaking unemployment rate, therefore, a better metric of the labor market (the prime age employment-population rate) shows job growth that has declined in recent months, and has shown no improvement since February. This is especially important because since January, the Trump administration has undertaken an enormous fiscal stimulus program unprecedented in the post-WW2 era. The fact that this stimulus has achieved essentially no progress in the labor market suggests warning signs for job growth going forward.

The most likely explanation for this slowing of job growth in the midst of significant stimulus is that the US labor market is currently at full employment, and was there in late 2017. This represents a searing indictment of the dishonesty of the Trump administration, which sold its tax cuts as necessary to jumpstart a weak economy. Not only have they not done so, but the job market in December was close to as strong as it is today.  

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