NDN Blog

Trump’s Tariffs Are A Growing Threat To The American And Global Economies

This is the eighth article in a series produced by NDN challenging Trump’s tariffs.

Today there is a growing body of evidence that one of Trump’s signature policy proposals, the tax cut, hasn’t delivered the economic returns promised by the President. I will argue in this piece that his other major initiative, the protectionist trade policy, has also failed to deliver on his promises. In launching the tariffs, Trump’s promises to Americans were simple: strengthen growth, reduce the trade deficit, and help US manufacturing. By any account, each one of these has failed. Instead, the trade war is now viewed as a growing risk to the global economy, and threatens to weaken the strong economy that Trump inherited in 2017.

Risks to Economic Growth

Since mid-summer, future growth expectations for the US and global economies have rapidly declined.  In Bank of America’s November investor report, 44% of investors expected a decline in global growth in 2019, the highest number surveyed since November 2008 on the eve of the Great Recession. In October, meanwhile, the IMF reduced their forecast of global growth for both 2018 and 2019 from 3.9% to 3.7%, representing a global income loss of almost $530 billion. This weakening of the global economy is likely to put significant downward pressure on US growth as well. Goldman Sachs now forecasts that US growth will fall from 3% this year to 2% in 2019, and will hit only 1.6% in the fourth quarter of 2019. Similarly, JP Morgan estimates that growth will decline from 3.1% this year to 1.9% in 2019, and will hit just 1.5% in Q4 2019.

Trump’s trade policies, which have placed tariffs on $250 billion of Chinese imports and $50 billion of steel and aluminum imports primarily from Canada and the EU, have played an important role in this slowdown. First, higher tariffs mean that domestic companies have to pay more for intermediate inputs, putting downward pressure on jobs, income, and capital investment as firms have to account for higher costs. Second, with less access to cheap foreign goods, the purchasing power of domestic consumers falls, meaning that workers can buy fewer products for every dollar they earn. Finally, tariffs create inflationary pressures by taxing low cost goods, which forces the Fed and other central banks to hike interest rates faster, thereby tightening financial conditions in the global economy. It is no surprise, then, that in Bank of America’s November investor report that found 44% of investors expecting a decline in global growth in 2019, investors cited Trump’s trade war as the biggest risk to the global economy (35% of investors), ahead of the Fed’s rate hikes (26% of investors), and rising corporate debt (14%). Business investment, a key component of growth and something heavily affected by firms’ input prices and consumer demand, has likewise slowed significantly in the face of Trump’s trade policies. Non-residential private investment rose only 2.5% in Q3 2018, compared to an average of 10.1% in the first half of 2018 and 6.3% in 2017. Furthermore, new durable goods orders have fallen for two straight months and are down 1.2% since June, significantly lower than the 2.3% growth seen in January to June 2018.

Worsening of the Trade Deficit

The six months since June have also seen a large widening of the trade deficit, and the US today is running its largest trade deficits since 2008. Since the tariffs were enacted, the trade deficit has increased by 18.1%, compared to economic growth in that period of 1.8%. Since June, the trade deficit has averaged $50.8 billion per month, which is 5% higher than its Jan-May 2018 average, 10.4% higher than its 2017 average, and 21.4% higher than its 2016 average under Obama. Given that one of the biggest impetuses behind Trump’s tariffs was to reduce the trade deficit, the policy as a whole seems to have faltered.

Driving the increase in the trade deficit, firstly, has been a decline in US exports. Exports have fallen at a 0.6% annualized rate since June, compared to an increase of 8% (annualized) in Jan-June 2018, 7.8% in 2017, and 4.1% in 2016. Secondly, US imports have skyrocketed since the tariffs were enacted, even though one of their major purposes was to encourage the substitution of imports with domestic production. Imports have risen at a 12% annualized rate since June, compared to 0.2% (annualized) in Jan-June 2018, 9.7% in 2017, and 4.5% in 2016. These trends are unsurprising given the effects of Trump’s tariffs. Almost $150 billion of US exports have had retaliatory tariffs enacted against them by our trading partners, and crucial intermediate inputs like steel and aluminum have seen their prices rise by over 20%, making American products uncompetitive abroad and at home.

Harms to US Manufacturing

Outside of the major macro-economic goals of improving growth and reducing the trade deficit, the tariffs were also primarily crafted to help US manufacturing. Instead, however, American manufacturing companies have been strongly hurt by the tariffs, and the auto industry in particular has seen its global competitiveness weakened. Since June, the S&P 500 Industrials index (which covers industrial companies within the S&P 500) has fallen by 5.1%. By contrast, it rose at an annualized rate of 11.8% from January 2017 to June 2018 and by an annual average of 14.2% during Obama’s 2nd term.  

GM, meanwhile, has seen a 15.2% decline in its stock price since June and earlier this week announced the layoff of 14,000 workers in North America and the closure of five plants. This is on the back of the company losing $1 billion in earnings in 2018 alone as a result of Trump’s steel and aluminum tariffs, and a 15% decline in GM’s sales in China in October as a result of worsening trade tensions. Similarly, Ford’s stock price has fallen 20.1% since June and the company last month announced likely layoffs of 12% of its global workforce (24,000 workers). Ford too reported that Trump’s tariffs would cost the company over $1 billion in earnings this year. Tesla also reported a drop in its China sales of over 70% in October, after warning last month that the trade war would harm its business. Finally, new reports suggest that the 25% tariff on foreign-made autos that Trump is considering would destroy a further 715,000 jobs in the auto industry and reduce annual GDP by $59 billion. Rather than revitalize US manufacturing, Trump’s tariffs instead have reduced its global competitiveness. With rising input costs and constrained export access, US companies particularly in the auto industry have been forced to lay off workers and close plants.

Large Losses in American Agriculture

The second biggest supposed benefactor from Trump’s tariffs were American farmers, who Trump claimed were taken advantage of by Canada and European protectionism. More so than any other industry, Trump’s trade policy has significantly harmed American agriculture. From June to September 2018 (the most recent data), US agricultural exports fell 1.8% YoY and the US trade surplus in agricultural products fell by 26%. As a result, the recent increase in farm bankruptcies throughout the country that began in 2017 has continued unabated, reaching levels over twice as high as those in 2013 and 2014. Soybean farmers in particular have been devastated by Trump’s trade war with China, and have seen a 97% decline in exports over the past three months.

Furthermore, while $12 billion in government bailouts has kept some farmers afloat, the damage done to agriculture (and to the rest of the US economy) will continue long after the tariffs are rescinded. New supply chains that exclude American workers, instead going to Canadian and Brazilian exporters, have been developed in place of American ones that took decades to develop. Further, the level of uncertainty over basic trade policy created by the Trump administration makes it less likely that American or foreign firms will invest in long term projects in the US.

Today there is an overwhelming body of evidence that Trump’s tariffs are unpopular and causing material harm to the US and global economy. The question now is, what do we do about it? In a recent Wall Street Journal interview, Trump showed that he doesn’t understand what he’s doing and that no rigorous analysis backs up his views on trade. As a result, it is unlikely that he can offer ideas to address the growing risks of the trade war with China and the conflict with our closest allies over auto tariffs. It will be up to members of both parties in the next Congress to challenge Trump far more directly on his reckless trade policies, and remove the threat to the US and global economies. 

2018 Was A Very Good Election For Democrats, And An Even Better One For Their Future

This piece is part of a series by NDN analyzing the 2018 election.

Much has been made about whether to call the 2018 midterms a “wave” election for Democrats. During election night, pundits were quick to capitalize on some early evening setbacks for Democrats to argue that the Party had underperformed their polls. However, with a dominating performance in California and strong results in Arizona coming in over the past week, it is clear that 2018 was indeed an historic wave election for Democrats.

National Popular Vote

The House popular vote is the best way to conceptualize the election results as a whole. It includes every voter in the country, isn’t affected by district gerrymandering, and ignores the partisan lean of the Senate seats up in a given year’s cycle. As of November 17th, Democrats had a 7.7% lead in the popular vote ahead of Republicans, and this is likely to end up close to 8% once all of California’s ballots are counted. How does this compare to previous elections? Firstly, it will likely be the largest popular vote win by any party in a national election since 1996 (when Democrats won by 8.5%) – larger than Republican’s 6.8% margin in 2010, Obama’s 7.2% margin in the 2008 presidential election, and likely Democrat's 8% margin in 2006. Second, compared to the three definitive midterm “wave” elections of the modern era (1994’s 7.1% margin for Republicans, 2006’s 8% margin for Democrats, and 2010’s 6.8% margin for Republicans), it is right at the top. Third, while Democrats have passed the 7.7% margin twice in the modern era, this margin is larger than any Republican electoral margin since 1988 (when Bush won the presidency by a 7.8% margin) and any Republican House margin since 1946 (when Republicans won by 8.5%). Fourth, the Democrats have won 53% of the vote in 2018 so far and are on track to hit near 53.2% once all of California comes in, which beats Obama’s 52.9% in 2008 for the largest percentage won by Democrats since 1986. Finally, the 37-40 seat pick-up by Democrats (depending on a few seats not yet called) will be the largest gain by Democrats since 1974. Clearly then, this election was one of the best showings by either political party in recent decades.

Young Voters

Even more decisive than its actual results, however, was what this election said about the future of the two-party system. In every demographic group that will increase its share of the electorate in future years, Democrats won unprecedented victories. Firstly, young people. Democrats won the 18-29 age group by 35%, the largest margin by any party for that demographic group ever recorded (data goes back to 1992 for House races and 1976 for Presidential ones). For context as to how dramatic a shift this has been, in 1998 this age group went 50-50 to Democrats and Republicans. For all under 45s, Democrats won by 25%, also the largest margin ever recorded for this group. As late as 2004, Republicans were winning this demographic group by 1% (and by 6% in 2002). The catastrophic Republican performance among young people cannot be overstated. In every single state with an exit poll in 2018, Democrats won the 18-29 group, including deep red seats like Mississippi (D+6 among 18-29 year olds), Tennessee (D+16), and Georgia (D+29). In Texas, a state where Republicans won 18-29 year olds by 5% in 2008, Democrats won that age group by 42%.

Hispanic and Asian Voters

Hispanic voters, who made up 11% of the electorate this year compared to 6% in 1998, showed a very similar trend. Democrats won the Hispanic vote by 40% in 2018, the 2nd highest margin among this demographic group since 2000 after Obama’s 44% margin in 2012. By comparison, Democrats won Hispanics by only 26% in 2014. Among Asian voters, who this year comprised 3% of the electorate versus 1% in 1998, Democrats won by 54%, their highest ever margin among this demographic. Among college-educated voters, meanwhile, Democrats won by a 20% margin, also the highest margin for either party since at least 1992. This compares to a Republican win of college-educated voters by 3% in 2014 and by 8% in 2010.

Democrats won an historic victory in 2018 among all voters, but their dominating victories among all of the emerging demographic groups should cause Republicans significant concern. In the early 2000s, the Republican Party put significant effort into reaching these voters, and they were rewarded in the 2004 presidential election with historic support from under 45s (R+1) and Hispanics (D+9). Under Trump, however, the party has harshly veered from that trajectory and has been decisively repudiated by those groups as a result. The R+1 among under 45s in 2004 has turned into a D+25 in 2018, while the D+9 among Hispanics in 2004 has turned into a D+40 in 2018. Unless Republicans can dramatically change how they are viewed by these groups, their long term path to power seems difficult.

Invite: Wed, Dec 12th - NDN's "Patriotism, Optimism"

Over the past year or so Simon has been making a big argument about the past and future of the center-left in America.  Called "Patriotism and Optimism," it makes the case that America is not in decline and is in fact doing as well as it has in any point in its history. It is meant to be an explicit rebuttal to the core argument Trump is making about America and its decline, an argument which is malevolently selling America and its people short every day. 

This primary way this argument has made itself into the world is through a 45 minute long Powerpoint deck, which has been seen in dozens of showings over the web and live in person to policy makers here in Washington and around the country. Our next showing of the deck will be Wednesday, December 12th from 12:00pm to 1:15pm at our new offices at 800 Maine Avenue SW, Washington, DC. Lunch will be served. You can RSVP for the event and learn more here. For background before the showing, feel free to check out some related readings below.

Key Background Readings On "Patriotism and Optimism"

The Case for Optimism: Rejecting Trump's Poisonous Pessimism, Simon Rosenberg, Medium, 6/2/17. In an essay that originally was published on Medium, Simon argues that the great rationale of Trump's Presidency  –  that America is in decline – simply isn't true, and must be challenged more forcefully.  This is the piece that spurred the creation of the presentation. 

Chin Up, Democrats, Simon Rosenberg, US News and World Report, 1/20/17. In his column Simon argues that Democrats should have pride in their historic accomplishments and optimism about the future of their politics. This one is very relevant to the presentation itself. 

A Center-Left Agenda for the Trump Era - Simon Rosenberg, US News and World Report, 12/9/16.  In the early days after Trump's election Simon layed out a possible agenda for the Democrats centering on prosperity, security, shoring up the American led liberal order and ambitiious efforts to reform our political system. 

Additional Readings

Some Thoughts On the Caravan - By Simon Rosenberg, Medium, 10/24/18.  The Caravan, composed of 7,000 poor, unarmed, mostly Honduran Central Americans, poses no threat to the US, and illegal border crossings continue to be way down. Some thoughts on what Democrats should do to respond to Trump's farcical attacks and terrible policies.

Are We Better Off Under Trump? The Short Answer Is No - By Simon Rosenberg and Chris Taylor, NDN, 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 - By Chris Taylor, 10/17/18.  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 in the coming months. 

Trump's Immigration Strategy Is Failing - By Simon Rosenberg, NBC News, 8/6/18.  Almost nothing the President has done on immigration and the border has worked; expect more extreme policies as the elections approach. 

Congress Must Debate The Weakening of Global Order - By Simon Rosenberg, NBC News, 5/10/18.  Few presidents have inherited a world or a nation in which more was going right. Trump seems determined to undo it all.

The Pernicious Politics of Oil - Simon Rosenberg, US News and World Report, 12/16/16.  Petro-powers are challenging the global order, and the next president seems uninterested in stopping them.

An Enduring Legacy: The Democratic Party and Free and Open Trade - Simon Rosenberg, Huffington Post, 1/24/14.  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. 

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.

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.

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.

Trump's Tariffs Are A Growing Threat To The American, And Global, Economies - 11/28/18 - US growth expectations have fallen, manufacturing and agricultural firms now face higher costs and weaker demand, and the trade deficit has surged. With a President unwilling or unable to grasp the risks of a broader trade conflict, it is up to Congress to challenge Trump far more directly on his reckless trade policies.

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. 

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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