Economic Storms Gather in Swing States

Abandoned factory.

As approval of the impeachment inquiry continues to rise, Donald Trump has continued his standard approach to everything: lie and and try to distract, even lying about knowing Rudi Giulian's newly arrested Russian cohorts. Meanwhile, his self-created trade wars are wreaking havoc on the economies of the swing states critical to Trump's re-election hopes: Michigan, Wisconsin, and Pennsylvania.  Particularly hard hit are manufacturing - which Trump promised to restore - and, of course, farming which is being further damaged by climate change in the Mid-West, a phenomenon that Trump claims is a Chinese hoax. A piece in Politico looks at the growing economic storm clouds hanging over states that, if they reject Trump, could end in his defeat in 2020, assuming his isn't removed from office before then.  Here are highlights:

Donald Trump shocked the world and won the White House in 2016 on bold promises to bring greatness back to the industrial Midwest.

But his promise now faces a brutal reality: The U.S. manufacturing sector is spiraling into recession, victimized by Trump’s trade wars and sagging confidence among corporate executives who have little idea how to plan for an uncertain economic future.

Unless Trump can ram his revised North American Free Trade Agreement through Congress and cut a deal with the Chinese to erase historically high tariffs, he may find it difficult to repeat wins in states like Michigan, Wisconsin and Pennsylvania that drove him into office in 2016 by the narrowest of margins.

“Manufacturing is in recession right now. This is what all the data show,” said Torsten Slok, chief economist at Deutsche Bank Securities. “And everywhere I go in the world, the fear I hear is that we are going to be driven deeper into recession because this is all about uncertainty caused by the trade war.”

Broad national gauges of manufacturing are already troubling, countering some of the president’s claims of success. The Institute for Supply Management manufacturing survey . . . . has shown a declining sector two months in a row, recently hitting a level not seen since the end of the Great Recession due to a sharp drop in new export orders. Respondents to the survey blamed a trade war that has reduced export demand and increased costs for parts used in manufacturing.

At the county and state level, the environment looks even darker for Trump.

The negative news on manufacturing comes as senior Chinese officials arrive in Washington for another round of talks aimed at reaching a deal with Trump that would reduce heavy tariffs that have imposed significant economic costs on both sides.

It’s unclear whether Trump would accept such a deal that could eliminate tariffs and relieve some of the pressure on the manufacturing sector, and he told reporters Wednesday afternoon that he didn’t think China was lowering expectations for a trade deal.

It’s not certain that even such a deal will reverse negative trends in the manufacturing sector, which overall is a small slice of the American economy but an important part of overall corporate profits. Manufacturing also supports all kinds of ancillary service-industry jobs that suffer whenever factory work declines.

Overall, the growth in manufacturing jobs — one of Trump’s biggest promises — has essentially vanished. After adding as many as 25,000 new manufacturing jobs per month last spring, the numbers began to decline as the trade war with China intensified. In September, the sector lost 2,000 jobs. That number could grow for October when striking GM workers are included.

“To the extent that the manufacturing slowdown continues unabated, which is likely unless there is a de-escalation in trade tensions, the electoral map could be more difficult for President Trump and Republicans in 2020,” Deutsche Bank analysts wrote in a report this week.

The still-strong national employment numbers, with a jobless rate at a half-century low of 3.5 percent, can also tell a misleading political story. . . . But dig deeper and large numbers of the jobs are coming from uncontested states like California. States that make up Trump’s coalition are not doing quite as well.

“It’s an existential political risk,” said Moody's Analytics chief economist Mark Zandi. “He won the election based on carrying Pennsylvania, Michigan and Wisconsin and appealing to those voters who work in manufacturing or related industries. He promised he would bring manufacturing jobs back and his policies are doing the precise opposite. Jobs losses are mounting, particularly in those states.”

Trump’s trade battle with China has also slammed rural states where farmers have been unable to sell soybeans and other products into one of their biggest markets. Trump has responded by moving to dole out $30 billion in bailout money and praising “patriot farmers.” Many of the states hit by the drop in agriculture exports like Indiana, Nebraska and Kansas are solid Trump country. Others like Iowa could be a problem for the campaign.

Trump is also trying to make inroads in Minnesota, where he narrowly lost in 2016, and plans to hold a rally there Thursday night. But Minnesota is feeling pressure both in manufacturing and agriculture, as are states like Iowa and Pennsylvania.

And it’s not clear that even a quick and limited deal with the Chinese could reverse some of the major negative trends in manufacturing.

Ultimately, Trump’s reelection could come down to three states — Michigan, Pennsylvania and Wisconsin — where manufacturing trends are working against him and where he will need a sharp turnaround. “In those three key states, the economies are weakening. Unemployment is low but rising,” said Zandi. “If it continues to rise between now and Election Day it will be very difficult for him to recover. The trend lines don’t look good.”

The trend lines may not look good for Trump, but are a net positive if they end up removing the orange cancer from the White House. 

The Growing Trump Created Economic Slump

Troubles for congressional Republicans are growing and not just because of Donald Trump's diarrhea of the mouth and tweet storms as the House of Representatives impeachment inquiry gains speed.  Like Trump, they are lying and obfuscating to avoid admitting Trump has engaged in impeachable offenses, and soon they will being doing the same as signs of Trump's self-created economic slump - trade wars and erratic policies do have consequences - become more evident.  Yes, the 35%  of the public that blindly supports Trump in a cult like manner will likely be unmoved as the economic downturn picks up momentum, but sane and sentient voters are likely to connect the dots and realize there is an additional reason Trump needs to be driven from the White House.  As Newsweek reports, one GOP strategist said to fellow Republicans "Trump is a suicide bomber, and you've strapped yourselves to him so tightly that when he explodes, you're going out to meet the 72 porn stars of the Trumpian afterlife with him."   That remark did not even factor in the looming economic issues. A column in the New York Times by a prominent economist lays out the damage Trump has done and continues to do.  Here are excerpts:

When he isn’t raving about how the deep state is conspiring against him, Donald Trump loves to boast about the economy, claiming to have achieved unprecedented things. As it happens, none of his claims are true. While both G.D.P. and employment have registered solid growth, the Trump economy simply seems to have continued a long expansion that began under Barack Obama.

But now it’s starting to look as if Trump really will achieve something unique: He may well be the first president of modern times to preside over a slump that can be directly attributed to his own policies, rather than bad luck.

There has always been a deep unfairness about the relationship between economics and politics: Presidents get both credit and blame for events that usually have little to do with their actions.

Now the U.S. economy is going through another partial slump. Once again, manufacturing is contracting. Agriculture is also taking a severe hit, as is shipping. Overall output and employment are still growing, but around a fifth of the economy is effectively in recession.

But unlike previous presidents, who were just unlucky to preside over slumps, Trump has done this to himself, largely by choosing to wage a trade war he insisted would be “good, and easy to win.”

The link between the trade war and agriculture’s woes is obvious: America’s farmers are deeply dependent on export markets, China in particular. So they’re hurting badly, despite a huge financial bailout that is already more than twice as big as the Obama administration’s auto bailout.

Shipping may also seem an obvious victim when tariffs reduce international trade, although it’s not just an international issue; domestic trucking is also in recession.

The manufacturing slump is more surprising. After all, America runs a large trade deficit in manufactured goods, so you might expect that tariffs, by forcing buyers to turn to domestic suppliers, would be good for the sector. That’s surely what Trump and his advisers thought would happen.

But that’s not how it has worked out. Instead, the trade war has clearly hurt U.S. manufacturing. Indeed, it has done considerably more damage than even Trump critics like yours truly expected.

The Trumpist trade warriors, it turns out, missed two key points. First, many U.S. manufacturers depend heavily on imported parts and other inputs; the trade war is disrupting their supply chains. Second, Trump’s trade policy isn’t just protectionist, it’s erratic, creating vast uncertainty for businesses both here and abroad. And businesses are responding to that uncertainty by putting plans for investment and job creation on hold.

So the tweeter in chief has bungled his way into a Trump slump, even if it isn’t a full-blown recession, at least so far. . . . Also, the pain in manufacturing seems to be falling especially hard on those swing states Trump took by tiny margins in 2016, giving him the Electoral College despite losing the popular vote. . . . . Trump is, as I said, unique in that he really did this to himself.

So what will come next? Trump being Trump, it’s a good bet that he’ll soon be denouncing troubling economic data as fake news; I wouldn’t be surprised to see political pressure on the statistical agencies to report better numbers.

The scary thing is that around 35 percent of Americans will probably believe whatever excuses Trump comes up with. But that won’t be enough to save him.

Trump is poised to utterly destroy the GOP, yet Republicans refuse to shout out that the emperor has no clothes.

Trump's Dangerous Economic Nationalsm

For Donald Trump and his most loyal followers, real objective facts do not matter.  Rather, for Trump, when not satiating his own ego, "facts" are whatever he needs to support his demagoguery. For his followers, "facts" are whatever allows them to blame others for their bad decisions - e.g., dropping out of high school or not pursing a college degree - and misfortunes.  The problem is, however, that objective reality and true facts  do not change to fit the needs of a demagogue or those who live detached from reality.  Nowhere is this more true than in economic and foreign trade policies.  Trump readily blames foreign trade and/or trade agreements for the decline of American jobs, but the true cause overall is something far different: automation and technological advances.  Plants that once needed thousand of workers can now operate - often at higher outputs - with a fraction of the number of workers. A column by an economist in the Washington Post looks at the dangerous falsehoods in Trump's economic nationalism.  Here are excerpts:

For starters, it vastly exaggerates the role of trade in destroying U.S. jobs. Of course, many American factories have shut, and their production has moved abroad (Mexico, China) or been replaced by the imports from foreign competitors. But these losses don’t explain the steep declines in manufacturing jobs, which dropped a third since 1990 (from almost 18 million to 12 million in 2015), even though factory output — of planes, earth-moving equipment, pharmaceuticals, computer chips — nearly doubled over the same years. Automation is the main cause. 

The often-overlooked truth is that the U.S. economy, despite much rhetoric to the contrary, is less globalized than virtually all other advanced countries. We produce most of what we consume. True, we imported nearly $2.8 trillion of goods and services last year, but we also exported almost $2.3 trillion. As a share of the $18 trillion economy, the deficit was less than 3 percent and about half its 2006 level. 

The danger of economic nationalism is that it deludes us into thinking that our problems mainly originate abroad and can be fixed by “tougher” trade policies. Not so. It’s worth recalling that the two largest economic setbacks since World War II were both domestic in origin: the high inflation of the late ‘70s, peaking at more than 13 percent (caused by easy money); and the 2008-2009 financial crisis (caused by reckless financial speculation). 

Although the United States should pursue its economic interests, it’s doubtful that trade concessions will cure chronic trade deficits. These mainly reflect the dollar’s role as the major international money for trade and international investment. Demand for dollars by foreigners raises the currency’s value, putting U.S. producers at a competitive disadvantage in global markets. This is unfair to American factories and farms, but the alternative — ruining the dollar through high inflation or exchange controls — would be worse.

Trade remains foreign policy. It’s true that today’s circumstances are very different from those after World War II. But the basic reality endures: Who we trade with and how are expressions of national purpose and power. Trump is wrong to reject the Trans-Pacific Partnership, which would encourage trade between the United States and other Pacific-rim countries, creating an alternative to a China-dominated system. 

Trump’s economic nationalism . . . . Down that path lie protectionism, isolationism, more trade conflicts and threatened economic growth. It would redefine America’s relationship with the world.