Trump and the Economy

600 days before the 2020 presidential election, it looks like the two major issues will be Donald Trump and the U.S. economy. Of course, this could change if Trump leaves office or there is a cataclysmic climate event.  Otherwise, the election will be determined by voters’ feelings about Trump and, of course, how they view their economic prospects.

The latest polls ( https://projects.fivethirtyeight.com/trump-approval-ratings/) indicate that 41.9 percent of voters approve of Trumps’ job performance — over the last 12 months this number has stayed in the approval range 38-43 percent.  Of course, not all of these Trump “supporters” approve of Trump’s behavior — a recent poll found that only 30 percent of respondents believed Trump to be “honest” (https://www.cnbc.com/2019/03/05/voters-believe-michael-cohen-over-president-donald-trump-poll-says.html).  Because I live on the Left Coast, I haven’t had many in depth conversations with Trump supporters, but those I have talked to said the same thing: “I don’t like the way Trump behaves, but his presidency has been good for me;” they thought they were making more money because of Trump.

That’s a remarkably widespread sentiment.  A recent Gallup poll (https://news.gallup.com/poll/247304/trump-rating-economy-top-strength-hits-new-high.aspx ) found that 56 percent of respondents approved of Trump’s handling of the economy.  (This was his highest rating in the Gallup survey;  at the other end of the spectrum, 60 percent disapproved of Trump’s handling of corruption.)  This results highlights a discontinuity in public opinion: most Americans don’t believe the country is headed in the right direction but they are generally satisfied with the economy.

In 2020, will the U.S. economy help or hurt Trump?  To answer this question we should examine Trump’s economic campaign promises.

Jobs: During the 2016 presidential campaign, Trump promised to create 25 million jobs over 10 years and to double economic growth to 4%.  According to Factcheck (https://www.factcheck.org/2019/01/trumps-numbers-january-2019-update/) since Trump became President the economy has added 4.9 million jobs (as of January).  Trump promised that most of these would be manufacturing jobs but, as of January, only 436,000 manufacturing jobs have been created.  By the way, a recent Pro Publica article (https://projects.propublica.org/graphics/trump-job-promises) said that of 31 specific Trump claims about jobs, most were misleading.

An October CNBC report (https://www.cnbc.com/2018/06/01/this-chart-shows-the-types-of-jobs-that-are-thriving-under-trump.html ) indicated that the majority of the new jobs are in the “mining and logging industry” (which includes oil and gas extraction), construction, and transportation.

While there has been an increase in jobs, most Americans have not seen an increase in wages.  Since Trump became President, wage growth has been tepid.  (https://www.motherjones.com/kevin-drum/2018/12/should-donald-trump-be-bragging-about-wage-growth/ )  In the fourth quarter of 2018, wages grew at .2 percent.

Trump promised that economic growth would be at least 4 percent.  So far, Gross Domestic Product has reached this mark in only 1 of 8 quarters.  GDP growth was 3.4 percent in the third quarter of 2018 and 2.6 percent in the fourth quarter.  On February 26th, Federal Reserve Board Chairman Jerome Powell told the Senate Banking Committee the Fed, “[Expects] the U.S. economy to grow solidly but at a slower pace this year than the estimated 3 percent growth for 2018.”  Some economists have suggested that in 2020 the U.S. economy will be stagnant.

Prediction for 2020: The economy will slow, fewer jobs will be added, and wages will be static.

Taxes:  During the campaign, Trump promised massive tax cuts: “Everybody is getting a tax cut, especially the middle class.”  He did push through tax legislation but it favored the rich at the expense of everyone else.  The most recent Gallup Poll found that 52 percent of respondents disapproved of the way Trump has handled taxes.

Trump promised to cut the corporate tax rate to 15 percent; his “Tax Cut and Jobs Act” cut the corporate rate to 21 percent.  (By the way, under Trump, corporate profits have increased by 14 percent.)

The net effect of Trump’s tax plan has been to reduce federal income by $1.5 trillion per year.  This produced an increase in the national debt.

Debt: Trump promised to bring down the national debt: “We’ve got to get rid of the $19 trillion in debt. … Well, I would say over a period of eight years.”  Instead, the national debt has grown to $22 billion (https://www.usatoday.com/story/news/politics/2019/02/12/national-debt-tops-22-trillion-first-time-ever/2849978002/); increasing at the rate of $30 billion per month.

Not everyone feels that the growing national debt is a problem; certainly not the Republican Party, which — when Obama was President — moaned about the national debt but, under Trump, has gone silent on the subject.  Nonetheless, Fed Chairman Powell is concerned; he told the Senate Banking Committee: “Federal government debt is on an unsustainable path… I think that U.S. debt is fairly high as a level of (gross domestic product) and, much more importantly than that, it’s growing faster than GDP.”

A growing national debt is likely to produce an increase in interest rates.  It’s also going to affect Congressional appetite for big federal public-sector initiatives such as massive investment in infrastructure.  (During the campaign, Trump promised: “to invest $550 billion to ensure we can export our goods and move our people faster and safer.”)

Prediction for 2020: As the economy slows, the increasing national debt will affect interest rates, dragging down growth.

Trade: During the 2016 campaign, Trump portrayed himself as a master dealmaker who would revitalize existing trade relationships.  Trump’s promised to renegotiate trade deals such as NAFTA.  He’s done this but with uncertain results (NAFTA was replaced by USMCA — the US Mexico Canada Agreement — which has yet to be ratified.)

Trump also promised to to raise tariffs on imports; particularly those from China.  He’s done this.

Despite Trump’s efforts, the U.S. trade deficit has increased by more than 20 percent.  On March 6th, the Commerce Department reported that the trade deficit was the largest on record: $891 billion.  (Including a $419 billion trade deficit with China.)

Prediction for 2020: While the trade issue has an uncertain impact on the overall economy, it does affect public perception of Trump’s leadership.  The latest Gallup Poll indicates that 50 percent of respondents now disapprove of Trump’s handling of trade.

Summary: Heading into the 202 election, Donald Trump is asking his supporters to trust him, in general, and to believe in his economic leadership.  While some will continue to trust him with the passion of religious zealots, others will falter; they will react to a slowing economy and a cluster of negative economic trends.  Trump’s political base will erode.