President Trump’s 2016 argument was that the economy was lousy (it wasn’t); he had the magic touch (he doesn’t) and could revive manufacturing (he can’t); and supply-side tax cuts, especially corporate tax cuts, would be a windfall for workers (they haven’t). The announcement from General Motors on Monday deals a blow to every element of that argument, and presents the possibility that the one thing holding Trump’s chaotic presidency together (the economy) is not nearly as strong as he would have us believe.
General Motors said Monday it will close five factories and lay off nearly 15,000 workers in a move that shows the economy may be starting to slow and dents President Trump’s claim to be leading a renaissance for industrial America.
The automaker said it would save $6 billion annually by thinning its salaried management ranks, dropping thousands of American and Canadian factory workers, and emphasizing the production of larger sport-utility vehicles rather than sedans. … Coming just weeks after Republican candidates lost several congressional seats across the industrial Midwest, GM’s action carries a stark political warning for the president. If voters conclude that Trump failed to deliver on his promise to return lost jobs and prosperity to the region, his reelection hopes could be dealt a blow.
Trump’s tariffs might be a huge unforced error and a contributing factor to the decision. (“Raw-material costs have soared as a result of Trump’s tariffs on imported steel and aluminum, with Ford saying it absorbed a $1 billion hit because of the president’s policies,” The Post says.) Reason magazine’s Eric Boehm noted, “If nothing else, losing $1 billion to higher import taxes may have forced GM to take more dramatic steps more quickly than otherwise would have. It’s also a reason why the company is unlikely to take Trump’s advice, offered Monday afternoon, to replace production of the Cruze with something else in Ohio.”
Former car czar Steve Rattner tells me that GM’s announcement “says that the auto industry is a tough business with many countries (like Mexico) now able to produce quality cars with much lower labor costs.” He adds, “That phenomenon is also broadly true in the rest of manufacturing, which is why Trump’s threats and promises are so hollow.”
Trump’s subsequent comments doubling down on protectionism should alarm policymakers and business decision-makers. In an interview with the Wall Street Journal, Trump suggested his next target was consumer electronics (and if you think millennials disliked Trump before, wait until they hear this):
The president said tariffs could also be placed on AppleInc. iPhones and laptop computers imported from China if the U.S. decides to put tariffs on additional goods. Some of his aides had suggested those products might be exempted from additional tariffs. The administration has been worried about a consumer reaction should such items be subject to levies.
“Maybe. Maybe. Depends on what the rate is,” the president said, referring to mobile phones and laptops. “I mean, I can make it 10% and people could stand that very easily.”
That’s probably the worst news the battered tech industry, which has suffered astronomical stock losses lately, could receive. (“Some analysts said the comments may shake investors,” Bloomberg reports. “With consumers ‘clearly price sensitive’ and the average sales price of an iPhone reaching almost $800, ‘the last thing [Apple CEO Tim] Cook and investors want to see is additional tariffs added to iPhones and impacting demand drivers at this crucial growth juncture for the company,’ Daniel Ives, an analyst at Wedbush Securities, wrote Monday in a note.”)
Certainly, not all our economic woes are attributable to Trump’s nonsensical trade policies. In general, presidents have less influence over the economy that they would like. However, as with the stock market, Trump claims all credit for the current economy; therefore setbacks will be attributable to him personally. If you promise “all the jobs are coming back,” and more jobs leave, you’re in trouble.
While Trump said he spoke to GM’s chief executive, the message was hardly compelling or concrete. (“Their car is not selling well. So they’ll put something else — I have no doubt that, in a not-too-distant future, they’ll put something else. They better put something else in.”) Wishful thinking is not a policy.
Even worse, some economists see the GM news as a sign that the long-anticipated slowdown in the economy is happening. While Rattner says the auto industry has unique challenges (e.g. autonomous driving), “On the broader economy, it’s another warning signal that we may he facing slower economic times.”
The Wall Street Journal also reports, “Few economists see a recession, but the large layoff announcement comes as other economic indicators flash yellow, signaling slowdown. The housing sector has slowed in the face of higher interest rates and the domestic energy sector faces a big drop in oil prices that could damp hiring and investment in places like Texas and North Dakota.” Moreover, an international economic slowdown, especially in China, coupled with stock market losses and rising interest rates, poses additional threats to the nine-year recovery.
If the economy does hit the skids, we should be concerned that, with interest rates still historically low and massive debt racked up in the first two years of the Trump presidency, the monetary and fiscal tools we will have at our disposal will be more limited than normal. It’s then that we should worry about a Trump recession.
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