Trump

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. 

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.

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.

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. 

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. 

Whatever Happens With Mexico, Trump’s Trade Policies Are Harmful And Need To Be More Aggressively Challenged

(This is the fourth essay in a series challenging Trump’s tariffs)

Trump’s trade policy has been centered on a simple trade-off for American workers – experience some hardship in the short-term in return for expanded opportunity in the long-term. So far, the President has kept his promise on the first of those items, as American farmers and manufacturers have been hit hard by retaliatory tariffs, increasingly costly production inputs, and weaker investment into the country. The promised long-term benefits, however, appear as elusive as ever. The three major trade negotiations with the EU, Canada/Mexico, and China have delivered little in the way of solid agreements, and actually serve as a retreat from the more ambitious trade liberalization of the TPP and TTIP talks. Furthermore, American workers are likely to permanently lose many of their foreign consumer bases if the trade policy remains in place, regardless of the results of the trade negotiations. While American workers are struggling today, they are likely to become internationally uncompetitive in the future if Congress doesn’t act to reject Trump’s trade policy.

Trade negotiations have produced little of consequence

Trump’s trade negotiations on three fronts have led to minimal, if any, steps towards increased trade liberalization and US access to foreign export markets. Of the three trade deals, the Trump administration has made the most “progress” in the NAFTA re-negotiations with Mexico and Canada, but even here a binding deal has not been made and the future of the preliminary agreement between Mexico and the US announced earlier this week seems in doubt. This is because Canada, despite the statements from the President, needs to ratify any deal for it to have a chance of success. First, Mexico has stated that they want Canadian involvement for any new deal to go through, and indeed, the optics of the current Mexican president (whose PRI party undoubtedly wants to remain politically competitive after he leaves office) bowing to Trump’s bullying while Canada resists would be politically devastating in a country heavily opposed to Trump. Second, a bilateral deal excluding Canada would almost certainly fail in Congress, as it would represent a significant imposition of tariffs on America’s closest ally and trade partner and would destroy millions of American jobs. As a result, the fact that Canada has not been part of the negotiations since July 1st, and would need to ratify all changes by this Friday in order to pass a deal before the December 1st inauguration of Mexico’s new president, puts a re-negotiation in doubt. Furthermore, significant differences on revisions to the trade deal still exist between Canada and the US, such as an American demand to loosen rules for enacting anti-dumping subsidies and strengthened intellectual property protections. This, combined with enormous Canadian public opposition to Trump, makes a quick concession by Canada this week unlikely, putting the entire negotiations at risk.

Even if a deal were to pass in the spirit of the Mexico-US preliminary deal, however, the long-term gains would be less than those of the TPP (which included Canada, Mexico, and the US) that Trump dismantled when he entered office. In terms of tariff liberalization, the TPP eliminated tariffs on 18,000 products worth $90 billion in US exports, whereas the Mexico-US deal does little to change tariff policy. Furthermore, the environmental, labor, and IP protections of the TPP all are stronger than those in this NAFTA deal. Indeed, the major change in the new deal from the original NAFTA agreement is a revision to the Rules of Origin provision, which under the new deal would require imported goods to have a greater amount of North American-produced content. Importantly, this provision isn’t liberalization at all, but instead acts to increase the cost of imported goods in an identical way as a tariff would. Furthermore, this provision would impose significant costs onto foreign producers, who would likely exit the NAFTA import rules and simply accept a 2.5% MFN import tariff instead. Finally, it is unclear how impactful this change in auto rules would even be for the US economy. One Bloomberg report argues that only 3 car models out of the 40 currently exported from Mexico to the US would be affected by the increase in North American content requirement, and less than one-third of cars exported from Mexico to the US would be affected by changes to wage requirements. What does this new deal, that has a questionable chance of being ratified in the first place, actually do then? It enacts liberalization that is far less ambitious than the TPP, and its major revision actually imposes additional barriers on foreign trade with the US. Further, some reports suggest that the US is requesting use of Section 232 (national security) tariffs on Mexican autos if they don’t meet the new requirements, rather than the existing 2.5% MFN rate. This arbitrary, illegal use of Presidential power would further weaken the global trading system, and our relations with Mexico, and must be knocked out as negotiations proceed.

Negotiations on NAFTA have been slow and likely counterproductive to trade liberalization, but those with the EU have been even more stagnant. After meeting with European Commission President Juncker on July 25, Trump was quick to announce that the EU had made major trade concessions and that a deal was imminent. Instead, it turned out that the EU had simply agreed to begin talks on tariff reduction, something that had already begun under the TTIP framework that Trump dismantled when he took office. Furthermore, the very next day, the EU clarified that agricultural protection would be off the table, stymieing a major goal of the negotiations. While discussions between the EU and US on trade have been intermittent since, talks have not begun and no European concessions have been made. In addition, the significant unpopularity of Trump in Europe has reduced the political capital available to European leaders to accept a deal with the US, further harming the likelihood of an agreement being enacted.

Finally, trade negotiations with China have been largely non-existent since the trade wars began. Instead, there has been a continuing tit-for-tat of increased US tariffs leading to larger Chinese retaliation over the past month, with Trump on August 2nd discussing the idea of increasing tariffs on $200 billion of Chinese goods to 25%. Furthermore, the Chinese yuan has depreciated almost 6% against the dollar in 2018 as a result of trade war fears and increasing interest rates in the US, making Chinese imports to the US even more competitive against US produced goods. For real negotiations to even begin, this escalation must stop, but both sides don’t seem willing to back down. Further, China is unlikely to take steps to either appreciate their currency or reduce domestic protection, because both steps would risk creating dangerous imbalances in the Chinese economy (for example, the depreciation of the yuan is largely a market-based reaction to tightening US interest rates rather than Chinese government intervention) and would demonstrate international political weakness unacceptable to the Chinese government.

More than two months after Trump implemented his tariffs as leverage to revise trade deals, each of his negotiations has barely begun, if at all. Indeed, for the EU, Canada, and Mexico, Trump’s negotiations have accomplished less ambitious liberalization than the TPP and TTIP that he dismantled upon coming into office. The promised long-term benefits, therefore, have failed to materialize for American farmers and manufacturers. Indeed, they face harmful long term headwinds that threaten their international competitiveness over the long term.

Damage to the economy will be long term

First, Trump’s trade policy has put the foreign consumer bases of American exporters at risk. Many US industries rely on exports to foreign markets as a key source of demand for their products. Over 36% of US agricultural revenue comes from exports, for example, and Canada, China, and Mexico are the top 3 export markets for American farmers, representing over $60 billion in US production. Maintaining access to these markets, therefore, is critical to the long term success of American workers. However, Trump’s tariffs have put this success at risk. When competing for foreign consumers, existing producers have large incumbent advantages, because the trading infrastructure is already in place and is costly to change even if other low-cost alternatives exist. The US was in a good position before the tariffs, therefore, because switching to other farmers (e.g. Canada or Brazil) had certain large start-up costs.

Trump’s trade actions have significantly changed this, however, because American supply has been cut off to their foreign consumer bases by the retaliatory tariffs, forcing foreign consumers to go to other producers and giving them incumbent advantages over American farmers. Furthermore, US trade policy has been fundamentally delegitimized, because the US President supported by Congress and the Republican Party have themselves to be willing to implement broad-based tariffs at will. As a result, foreign consumers aren’t willing to risk an export disruption from US tariffs in the future, and instead will go to other producers even if more expensive. As a result, many foreign consumers of US products have said that they will not return to US producers, even after the trade war has ended.

Second, the Trump’s trade policy threatens to significantly weaken the efficacy of the World Trade Organization, which has been a critical actor in encouraging global trade liberalization. Since Trump enacted tariffs on steel and aluminum imports, seven countries including the EU, Canada, Mexico, and India have filed challenges at the WTO to the tariffs. They claim that the US tariffs are being used as “industry safeguard restrictions”, which were ruled in 2002 (against the Bush steel tariffs) to be an illegal use of trade policy. The Trump administration has countered that the tariffs are justified under national security grounds, but this is a laughable justification that can be quickly disproved. Furthermore, the primary precedent for WTO-approved national security tariffs involved those by the EU, US, and Canada against Argentina during the Falklands War. While those involved restrictions against an authoritarian military junta at war with the UK, Trump’s tariffs are against liberal democracies closely allied with the US. As a result, it is likely that many of those challenges to Trump’s tariffs will succeed at the WTO, putting Trump on a collision course with that institution.

While Bush quickly backed down in the face of WTO sanction in 2002 and rescinded his steel tariffs, Trump is likely to not back down, and indeed creating an excuse to exit the WTO may have been a goal of these tariffs in the first place. This type of action would have grievous long-term consequences for the US economy. Firstly, the inability of the WTO to oppose US protectionism would significantly weaken its efficacy with other member states, who would use the precedent to themselves not reduce their trade barriers. The WTO has been extremely good for the US in that it has encouraged countries to reduce their import tariffs to US goods, among others, and indeed the reduction in China’s average import tariff from 32% in 1992 to 4% today was largely due to the conditions required for Chinese WTO entry. Furthermore, if the US refused to accept a WTO ruling, it would likely lead to the WTO-backed imposition of considerable retaliatory tariffs by all WTO members. Chinese retaliation has affected $34 billion in US exports so far and has already caused a significant decline in US farmer and manufacturer revenue. As a result, if each WTO member were to impose retaliation, US exports could fall by hundreds of billions of dollars, with severe impacts on the US economy.

Trump’s trade policy threatens the long-term competitiveness of US workers and the global trading system as a whole, in addition to significant short-term costs to the US economy. And what has been achieved in return – no meaningful trade agreements with Canada, Mexico, the EU, or China, let alone major liberalizing concessions. Indeed, if Trump had simply continued to negotiate the TPP and TTIP treaties that he dismantled when he took office, the US would have made more progress on trade liberalization, without any of the costs to US workers. Congress must act to reject this failed trade policy this fall, before the damage done to American farmers and manufacturers, as well as the global trading order, is made permanent.

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