the economy

Trump’s Economic Record Is Now a Disaster by His Own (Dumb) Standards

Trade wars are good and easy to win. Photo: Oliver Contreras/Bloomberg via Getty Images

Late in the second season of The Wire, Baltimore longshoreman Frank Sobotka coughs up that show’s thesis statement. As the union boss’s crimes start catching up with him, he stares into the middle distance, and suggests that all the American carnage the viewers have witnessed — all the prepubescent smack dealers and adolescent hitmen, the cops who belong in rehab and kingpins who belong in business school, the downwardly mobile stevedores and shipping containers full of dead sex workers — all of it flows from the same root cause.

“You know what the trouble is, Brucey?” Sobotka asks. “We used to make shit in this country, build shit. Now we just put our hand in the next guy’s pocket.”

Donald Trump spent much of 2016 making the same argument. “Globalization has made the financial elite who donate to politicians very wealthy. But it has left millions of our workers with nothing but poverty and heartache,” Trump told supporters in Pittsburgh in June of that year. “I have visited cities and towns across this country where a third or even half of manufacturing jobs have been wiped out in the last 20 years. Today, we import nearly $800 billion more in goods than we export. This is not some natural disaster. It is politician-made disaster.”

The mogul had a point. In response to the stagflation crisis of the 1970s, America’s political leaders made a variety of policy decisions that dramatically restructured our domestic economy. Under Paul Volcker’s leadership, the Federal Reserve chose to break the back of inflation by raising interest rates to unprecedented heights. This policy had its intended effects — along with a variety of others. Sky-high interest rates were great for major lenders (i.e. banks), as they benefited from both historically high returns on their capital, and a newly strong dollar that attracted a flood of foreign investment to the U.S. financial sector. But such rates were terrible for (debt-financed) industrial enterprises. Interest payments ate into their profits, while the dollar’s strength made their exports less competitive in foreign markets. Meanwhile, the exorbitant price of credit gave large corporations a competitive advantage over less creditworthy small businesses, fueling corporate consolidation. Wall Street boomed. The Rust Belt rusted. Capital flew out of industrial hubs in middle America, and into the “FIRE” economies of coastal cities.

This worked out great for people like Donald Trump; less so, for the people the president claims to care about. Thus, for the past three and a half years, Trump has been promising to reverse the economic trends that have made life so easy for New York real-estate developers, and so hard for midwestern autoworkers. He insisted that the trade deficit in manufactured goods is the defining measure of an economy’s health — and that his “America First” policies would make Youngstown, Ohio prosperous again. In the summer of 2017, Trump told a crowd in that long-deindustrializing municipality, “Don’t sell your house … We’re going to get those jobs coming back.”

By most economists’ standards, the economy has performed quite well since Trump took office. But by Trump’s own metrics, it’s been an utter disaster. As the Washington Post reports:

The Commerce Department said Wednesday that — despite more than two years of President Trump’s “America First” policies — the United States last year posted a $891.2 billion merchandise trade deficit, the largest in the nation’s 243-year history.

The trade gap with China also hit a record $419 billion, underscoring the stakes for the president’s bid to reach a deal with Chinese President Xi Jinping as soon as this month.

… A broader measure of the nation’s trade performance, which includes the services sector, showed a narrower, but still large $621 billion deficit. That reflected a deterioration of more than $100 billion from the figure that Trump inherited from President Barack Obama.

Coincidentally, the very same day this data was released, GM shuttered production at its storied plant in Lordstown, Ohio. And that closure is no aberration. While the Trump era has witnessed some growth in manufacturing employment, the president’s policies have done little to arrest the Rust Belt’s industrial decline.

These developments largely reflect forces beyond the president’s control. Over the past year, slowing growth in China and Europe eroded overseas demand for American exports, while the dollar’s resilient strength made foreign goods more appealing to U.S. consumers, and U.S. goods less appealing to foreign ones. Trump’s tax cuts did juice American consumer spending — and thus likely inflated the trade deficit by sucking in more imported goods. But increasing your constituents’ purchasing power is nothing to be ashamed of.

And yet, not all of the causes of our historic trade deficit — let alone growing regional inequality — are benign. And many were “politician-made.” Had the United States taken a different approach to industrial (and antitrust) policy over the past four decades, the dollar might be weaker; our manufacturing base stronger; the financial industry smaller; investment less concentrated in large urban centers; and many ordinary Americans better off. And a sufficiently committed ruling party — which is to say, one willing to embrace aggressive state intervention, and to run roughshod over entrenched interests — could conceivably bend our economy back in that direction.

But for all his rhetorical jabs at “the financial elite,” Trump has made no serious effort to rebalance the U.S. economy away from the FIRE sector that’s treated him so well. Last year, the president’s tax cuts delivered $21 billion worth of savings to America’s 23 largest banks. And his administration has worked tirelessly to pad the profits of the broader financial industry — by, among other things, making it less risky for payday lenders to scam veterans, and legal for investment adviser’s to put their own interests above those of their clients.

The president’s various tariffs and trade wars do not constitute a coherent agenda for addressing Frank Sobotka’s complaint. His populist producerism was never a serious economic doctrine. It was a PR strategy — and as today’s headlines about America’s historic trade deficit make clear — a moronic one, at that.

Trump’s Economic Record Is a Disaster by His Own Standards