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General Motors just fired an arrow into the heart of President Trump’s #MAGA promise.
In announcing it is cutting 15 percent of its North American workforce, the car company underlined a hard truth economists have long acknowledged: The factory jobs that Trump carried the Rust Belt vowing to restore aren’t magically coming back.
Trump has made the possible political fallout for himself worse by his emphasis on automakers as the spine of American manufacturing might. And the guarantees he made to the industry’s workers could not have been more explicit. To those at an October 2016 campaign rally in Warren, Mich., where GM announced it is closing a transmission plant, Trump said if he won, “you won’t lose one plant, I promise you that.” He made a similar pledge last year in Youngstown, Ohio, near the Lordstown facility GM is shuttering:
Trump, Youngstown, 2017: Those jobs are "all coming back. They’re all coming back. Don’t move, don’t sell your house. We’re going to fill up those factories or rip them down and build new ones." https://t.co/39MmVPNS1o— Glenn Kessler (@GlennKesslerWP) November 26, 2018
Many workers believed him. About 40 percent of the local United Auto Workers Union in Lordstown backed Trump, the local president tells my colleagues David Lynch and Taylor Telford. And he won nearby Trumbull County, Ohio, home to many Lordstown workers, by more than six points four years after Barack Obama carried by 23. The area is likely to figure prominently in the 2020 contest, as Bloomberg News’s Andrew Mayeda notes:
Big reason why the GM layoffs are swiftly becoming a political football: two of the plants being shut down (Youngstown, OH and Warren, MI) are in the heart of turf Trump flipped or became competitive in in 2016 and will be major battlegrounds in 2020.— Andrew Mayeda (@amayeda) November 26, 2018
This spring, Trump was touting what he called a record-fast auto industry expansion, per Bloomberg's Steve Dennis:
7 months ago: “Auto companies expanding at record pace” https://t.co/EOBxPY5zrw— Steven Dennis (@StevenTDennis) November 26, 2018
And the Toronto Star's Daniel Dale notes Trump has continued that hype as recently as this month:
Trump has been lying this month that car plants are opening in "Michigan and Ohio and Pennsylvania and South Carolina and North Carolina and Florida." https://t.co/GmEX5ynZz2— Daniel Dale (@ddale8) November 26, 2018
Trump didn’t try to conceal his frustration at GM’s announcement on Monday. “I have no doubt that in the not too distant future, they’ll put something else. They better put something else in,” Trump told reporters after a call with GM chief executive Mary Barra that he framed as confrontational.
Describing the conversation in an interview with the Wall Street Journal, the president said he told Barra, “You’re playing around with the wrong person … And they better damn well open up a new plant there very quickly … It’s not going to be closed for long, I hope, Mary, because if it is you’ve got a problem.”
Trump didn’t elaborate on the warning, and there’s little he can do. When Harley-Davidson, a similarly iconic brand that Trump embraced as a candidate, said this spring it would shift some production to Europe to avoid retaliatory tariffs, the president lit into the company and endorsed a boycott:
Many @harleydavidson owners plan to boycott the company if manufacturing moves overseas. Great! Most other companies are coming in our direction, including Harley competitors. A really bad move! U.S. will soon have a level playing field, or better.— Donald J. Trump (@realDonaldTrump) August 12, 2018
The motorcycle maker's sales slid in the third quarter, though in line with a decline already underway, so it's not clear the president can claim credit. Trump also jawboned GM before he took office, saying the company would face a “border tax” unless it moved Mexican production to the U.S.:
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!— Donald J. Trump (@realDonaldTrump) January 3, 2017
Nothing came of it.
But economic fundamentals pose an even stiffer challenge to the president’s ability to make good on his word. In GM’s case, the company said it is curbing cars that simply aren’t selling enough, including sedans like the Chevrolet Impala, Cruze and Volt that are out of favor with consumers who prefer SUVs, trucks and crossovers. Analysts say it also wants to streamline production spread too thinly across too many factories and free up cash to invest in self-driving and electric vehicles that represent the future of its fleet. (Trump's trade war hasn't helped; GM has said metals tariffs alone have cost it $1 billion.)
“You’ve got to go where you can make money, at the end of the day,” says David Whiston, an auto industry analyst at Morningstar Research Services. “I don’t want to see these plants close and workers lose their jobs, but if you've got too many workers and too many plants, you’ve got to downsize eventually.”
Brent Campbell, a Moody’s economist who focuses on Ohio, tells me GM’s announcement is “in keeping with our outlook for manufacturing more broadly. It’s a longer-term trend we’ve anticipated in terms of the shift in demand and the decrease in manufacturing employment.”
The share of Ohioans employed directly in manufacturing, which has been falling, now stands at 12.4 percent, Campbell says, and Moody’s expects it to continue declining. The phenomenon holds nationwide. Even as the raw number of manufacturing workers has inched up since the financial crisis, their share of the workforce has traced a steady, decades-long slide as the American economy moves further away from its bygone preoccupation with making stuff, as this chart illustrates:
Against that backdrop, Trump has likewise failed to bring about the renaissance in steel jobs he promised his tariffs would achieve. And he's had little success reviving the coal and mining jobs he also promised to bring back.
Yet a more ominous factor is also at play: Demand for cars in general is falling.
That points to a more widespread slowdown in economic activity that could be nigh — one whose timing would be especially inconvenient for Trump as he seeks to rebuild his winning 2016 coalition in the Upper Midwest.
“Few economists anticipate a recession anytime soon, but auto sales have fallen by 1 million vehicles per month since September 2017, and data on retail sales, industrial production and housing all suggest that the economy is tiring,” David and Taylor write.
According to Green, the local autoworker union president, it was already sputtering in northeast Ohio: Trump, he said “came to our community and said, ‘Don’t sell your house. These jobs are coming back,’ … We’ve seen nothing but job losses around here.”
The news played differently on Wall Street. GM’s stock surged on the announcement, recording its highest closing price in three months:
Bob Lutz, GM’s former vice chairman, in a CNBC appearance called Barra’s move a necessary adjustment in the face of shifting consumer demand:
BOB LUTZ on $GM: They "hung onto passenger cars longer than anyone else. Everyone wants these upright vehicles called crossovers. .. In the old days, GM would have raised incentives, said oh we can’t close plants, what will the mkt say Now, they look at the hard reality."@CNBC— Carl Quintanilla (@carlquintanilla) November 26, 2018
Analysts agreed. “In our view, the company is wisely staying ahead of the cycle and moving to remove vehicles that are out of favor now that Americans are buying light trucks at a torrid rate. Morningstar’s Whiston wrote in a research note. And UBS Securities analyst Colin Langan wrote, “We are impressed by GM’s cost actions, and remain bullish on the stock.”
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— Business investment stumbles. Bloomberg's Sho Chandra and Liz McCormick: "Juiced by [Trump’s] tax cuts, business investment helped deliver a robust U.S. economy in the first half of 2018, but signs have multiplied that the growth driver is faltering. Companies face tariff-related uncertainty, cooling global demand and rising borrowing costs, while plunging oil prices are menacing the energy sector. Meanwhile, the U.S. and China are settling in for a protracted trade war, the boost from lower taxes is projected to fade next year and a politically divided Congress will probably shirk from additional stimulus.
These challenges will test corporate America’s appetite to invest in the kind of faster-growth, higher-productivity future the Trump administration has promised. While such spending picked up in early 2018 after plodding along for years, a string of weak reports raises questions about the outlook. With firms using tax savings for buybacks and dividends rather than investment, the best gains may already be over."
Morgan Stanley strategist: Expect a rocky 2019. CNBC's Thomas Franck: “Morgan Stanley's equity strategist who foresaw the recent sell-off in U.S. stocks sees a lackluster year ahead, marred by underwhelming corporate earnings and tougher financial conditions. Mike Wilson, chief equity strategist at Morgan Stanley, said in a note that he ‘sees more of the same’ stagnant performance from the major indexes in 2019 and forecasts the S&P 500 finishes next year at 2,750, just 3 percent above current levels. His 2019 target is the equivalent to his 2018 target, implying no growth over 12 months. ‘After a roller coaster ride in 2018 driven by tighter financial conditions and peaking growth, we expect another range-bound year driven by disappointing earnings and a Fed that pauses,’ Wilson wrote in a note to clients Monday. ‘We think there is a greater than 50 percent chance we experience a modest earnings recession in 2019 defined as two quarters of negative year-over-year growth for S&P 500 EPS.’ ”
— Trump blasts Powell, again. We've lost count of how many times he's gone here, and it's questionable whether it's even newsworthy at this point. But the president again laid into his hand-picked Federal Reserve chairman in his WSJ interview. Here's what he told the paper: "Well, let’s see what happens with Jay Powell. So far, I can tell you – I said it the other day, and I’ll say it again: I think the Fed right now is a much bigger problem than China. I think it’s – I think it’s incorrect what they’re doing. I don’t like what they’re doing. I don’t like the $50 billion. I don’t like what they’re doing in terms of interest rates. And they’re not being accommodative at all. And I’m doing trade deals, and they’re great trade deals, but the Fed is not helping. Whereas, China, you know, they have automatic accommodation."
— Saudi Arabia juices oil production. Reuters's Rania El Gamal: “Saudi Arabia raised oil production to an all-time high in November, an industry source said on Monday, as [Trump] piled pressure on the kingdom to refrain from production cuts at an OPEC meeting next week. The meeting, at which OPEC members will consider how to arrest a decline in oil prices, comes days after leaders of top global oil producers — Russian President Vladimir Putin, Saudi Crown Prince Mohammed bin Salman and Trump — travel to Argentina for a G20 summit this week.”
Goldman Sachs breaks with Trump on oil prices. CNBC's Tom DiChristopher: “The rapid plunge in oil prices to $50 a barrel is bad for the United States and threatens to create problems in the credit market, warns Jeff Currie, head of commodities research at Goldman Sachs. Currie's opinion is at odds with the view from the White House, where [Trump] has been cheering the recent oil market sell-off and urging Saudi Arabia to drive prices even lower. . . Currie thinks Saudi Arabia and Russia have an opportunity to convince Trump that the production cuts are necessary at this week's G-20 meeting in Argentina. ‘We think a production cut is in the interest of all three parties,’ Currie told CNBC's ‘Squawk on the Street’ on Monday. ‘Oil prices at $50 a barrel dig into the U.S. industry's cost structure. It's not good for the U.S. either at these prices.’ ”
Trump: Expect increase in tariffs. The Wall Street Journal's Bob Davis: “Trump, days before a summit with China’s leader, said he expects to move ahead with boosting tariff levels on $200 billion of Chinese goods to 25%, calling it ‘highly unlikely’ that he would accept Beijing’s request to hold off on the increase. In an interview with The Wall Street Journal, Mr. Trump suggested that if negotiations don’t produce a favorable outcome for the U.S., he would also put tariffs on the rest of Chinese imports that are currently not subject to duties. ‘If we don’t make a deal, then I’m going to put the $267 billion additional on’ at a tariff rate of either 10% or 25%, Mr. Trump said. ... The meeting between Mr. Trump and President Xi Jinping of China at a summit of the Group of 20 industrial and developing nations in Buenos Aires, which begins on Friday, comes amid escalating trade tensions that have weighed on stock markets in both countries.”
U.S. officials think they have the upper hand. WSJ's Gerald F. Seib: “[At] the moment, U.S. officials think they have leverage, generated from three forces. First, unlike in trade fights Mr. Trump launched with allies in Europe and North America, officials believe they have broad international and business-community support for a tough stance with China. Second, China’s own economy is showing some signs of faltering, which, presumably, raises worries in Beijing about the costs of a prolonged trade fight. And third, there are signs of internal grumbling among Chinese elites that Mr. Xi has mishandled the crucial U.S. relationship. Of course, Mr. Trump feels pressure, too . . . So, both sides may have reason to make happy sounds when the presidents meet. But a real resolution of trade disputes will require — to borrow a Chinese phrase — a long march.”
Momentum for a truce? The Post's David Lynch and Gerry Shih write that "for the first time since Trump began raising tariffs on Chinese products in July, there is cautious optimism that the two leaders may reach at least a partial deal to defuse a trade conflict that is rattling investors and sapping economic activity around the world. Domestic political forces — including suddenly wobbly U.S. financial markets and hints of elite disquiet in China — are propelling the two presidents toward a truce."
China wants to show it welcomes foreign businesses. WSJ's Chao Deng: “In its latest move to show it’s open for foreign businesses ahead of a summit with [Trump] and other Western leaders, China paved a way for German insurer Allianz SE. . . . In recent weeks, Chinese regulators permitted American Express Co. to set up card-clearing services and blessed United Technologies Corp.’s $23 billion takeover of airplane-parts maker Rockwell Collins Inc. The insurance and banking regulator said Sunday that it received Allianz’s request to establish what the regulator said would be the country’s first wholly foreign-owned insurance holding company. Allianz said the approval will allow it to expand investment in China. . . . ‘China is trying to show the world it is opening up, but whether the world will believe that with this move is another question,’ said Jonas Short, head of the Beijing office at securities firm Everbright Sun Hung Kai Co.”
— U.S. and Argentina near beef deal. Reuters's Hugh Bronstein, Cassandra Garrison and Tom Polansek: “Argentina is on the verge of signing a deal with the United States that would allow two-way trade of fresh beef for the first time in nearly two decades, the South American country’s international trade secretary, Marisa Bircher, said. The agreement, expected to be signed within days, would simultaneously open beef imports to both countries, Bircher told Reuters in an interview.” Argentina has also replaced China as the world's biggest buyer of American soybeans, Bloomberg reports.
— Senators want tariff exclusions probed. Bloomberg’s Erik Wasson and Jenny Leonard: “A bipartisan group of U.S. senators requested an independent review into the Trump administration’s process for granting product exclusions from steel and aluminum tariffs. Pennsylvania Republican Pat Toomey, an ardent free-trader, joined centrist Democrats Doug Jones of Alabama and Tom Carper of Delaware on Monday in demanding a review by the Government Accountability Office. The senators say that the Commerce Department as of last month had only processed about a third of the nearly 50,000 requests for exemptions.”
- “Mueller says Manafort lied after pleading guilty, should be sentenced immediately.” The Washington Post's Spencer S. Hsu, Rachel Weiner and Devlin Barrett.
- “Conservative author and Roger Stone associate Jerome Corsi says he is rejecting plea deal from special counsel.” The Post's Rosalind S. Helderman, Carol D. Leonnig and Manuel Roig-Franzia.
- “‘I connect the dots’: Mueller target claims Podesta hack knowledge was educated guess.” Politico's Kyle Cheney.
— Holiday sales off to promising start. Bloomberg News's Janet Freund: “Black Friday weekend sales data from third-party analytics providers indicate a merry start to the holiday season, with online sales taking more share — even ahead of Cyber Monday. Four-day Black Friday weekend sales totaled about $60 billion, according to Customer Growth Partners. Consumer electronics and appliance sales rose 6.4 percent, vs CGP’s estimate of 6.1 percent growth, while apparel sales rose 5.4 percent, in line with the firm’s projection, but still the best growth since 2011. Meanwhile, deal hunters were rewarded with promotions at least as good as last year, many analysts say.”
— Trump draws hard line on border wall. The Post's Erica Werner and Damian Paletta: "Trump has signaled to congressional Republicans that he will not budge from his demand of $5 billion for the construction of a wall along the Mexico border, heightening chances for a partial government shutdown at the end of next week. Senate Appropriations Committee Chairman Richard C. Shelby (R-Ala.) told reporters Monday that the president has made clear that the $5 billion is a red line and he won’t take less. Democrats have rejected that figure and have agreed to $1.6 billion.
"It’s unclear how the difference can be bridged, especially with clashes along the U.S.-Mexico border spotlighting what Trump says is the need for greater security and physical barriers. Although the bulk of the federal government has been funded through next fall, money for the Department of Homeland Security and a handful of other agencies runs out at midnight Dec. 7 unless Congress and the president act first."
— House GOP unveils tax package. Politico's Brian Faler: "House Republicans on Monday evening unexpectedly released a 297-page tax billthey hope to move during the lame-duck session of Congress. The legislation would revive a number of expired tax provisions known as “extenders,” address glitches in the Tax Cuts and Jobs Act and make a range of changes to savings- and retirement-related tax provisions.
"Other parts of the bill would revamp the IRS, provide new tax breaks for start-up businesses and offer assistance to disaster victims. The measure amounts to House Republicans’ opening bid in negotiations with the Senate. They’ll need Democratic support there to move any changes, and it’s unclear lawmakers will agree to any of the provisions before adjourning for the year."
- The Clearing House and Bank Policy Institute’s 2018 Annual Conference in New York through tomorrow.
- Federal Reserve Chair Jerome H. Powell delivers a speech at an Economic Club of New York luncheon tomorrow.
- Federal Reserve Chair Jerome H. Powell appears before the Joint Economic Committee on Dec. 5.
- Senate Banking Committee hearing on “Oversight of pilot programs at Fannie Mae and Freddie Mac” on Dec. 5.
— From The Post's Tom Toles: “On climate, Trump has learned a new way to learn nothing.”
The most recent clash between Ukraine and Russia, explained:
Scientist claims he’s created gene edited babies. Most scientists are shocked and skeptical:
How Trump is hindering the fight to stop climate change: