Sunday, July 29, 2018

Trump Fixes Everything

Donald Trump fixes everything, just as he said he would. He fixed the economy, which posted a strong 4.1 percent gain in the second quarter. Didn't know the economy had been broken? Now you do.

"We're having the best economy we've ever had in the history of our country," Trump said in an address on Thursday.

And thank goodness for that.

At the White House on Friday, Trump said "we've accomplished an economic turnaround of historic proportions," a "turnaround" presumably based on a single strong quarter of GDP growth and a continuation of solid job creation. Historic!

Trump said the second quarter's 4.1 percent growth rate was "amazing."

How historic and amazing is that number? Well, Obama had four quarters over 4 percent. Two of Obama's quarters were 4.6 percent—half a point higher than Trump's—and one was a whopping 5.2 percent. Because it is not a technical term recognized by economists, I use the word "whopping" advisedly, in simple contrast to Trump's "amazing," to indicate Obama's quarter crushed Trump's by over a point. Obama also had a couple of 3.9 percent quarters. So there's recent precedence for "amazing" GDP growth.

And yet, full disclosure requires me to report that killjoy economists say Trump's 4.1 percent quarter is likely to be a one-time affair. A confluence of one-off factors contributed to second quarter strength, and they will not be repeated. These include a strong increase in consumer spending, apparently thanks to the tax cut. But because GDP growth is a compounding quantity, simply maintaining that new, higher level of spending won't produce further growth.

And a somewhat surprising and significant factor in the strong quarterly report was a huge surge in soybean exports ahead of China's imposition of tariffs in response to Trump's trade war. That won't be repeated either—quite the opposite. With tariffs in place, soybean exports are now weak and will constitute a drag on the economy going forward.

Alas, economists say the economy has probably already peaked. The third quarter report will likely be lower, and the fourth quarter lower still. Overall GDP growth for all of 2018 could easily come in at less than 3 percent, with even lower growth next year. Economists say that the economy chugging along at a steady 2.5 percent annual growth over the next several years, which is far from assured, would be a dandy result.

But not dandy enough to pay for the recently passed tax cuts, which is one reason those cuts were, fiscally speaking, a bad move. The cuts, mostly for corporations and the rich, will result in much higher deficits and debt over the coming decade. Already government revenues from corporate taxes are down thanks to the cuts, and the U.S. is closing in on $1 trillion annual deficits. The tax cuts alone will account for a trillion or more dollars in increased debt over a decade. It's a matter of Republican religion that tax cuts pay for themselves through higher growth, a doctrine unsupported by economics. Because the necessary growth is unlikely to materialize, the budget shortfall the cuts will cause won't be fixed any time soon.

Despite economists' projections, Trump is saying the second quarter is just a taste of what's ahead, with even higher GDP growth in the future. Indeed, 4 percent or greater growth has always been a feature of his core package of economic promises. Economists are unanimous: Ain't gonna happen.

But at least Trump has delivered on jobs, right? Hasn't job creation been historic and amazing under Trump? Hasn't Trump fixed the job market?

No. Not that it was actually broken, even if Trump complained mightily about Obama's economy. The main valid complaint about the job market is that wage increases have been anemic, barely matching inflation. That deficiency hasn't yet been fixed, a matter of considerable puzzlement to economists.

Job creation under Trump has been solid, but a good bit slower than under Obama. Over Obama's final 5 years in office, far more jobs were created as a monthly average than Trump's monthly average so far. Substantially more jobs were created in Obama's final 16 months in office than in Trump's first 16 months.

It is true, as Trump likes to remind us, that the unemployment rate has hit a 20-year low. But the rate has been declining at a fairly constant pace for the nine years of positive job creation the present economy has enjoyed. The decline has continued but not accelerated under Trump: he simply gets to claim the final result that's been building for almost a decade. His oblivious followers say, about time!—which is itself a testament to the power of propaganda.

Well, then, what about the trade deficit, a statistic very near and dear to the president's heart? Because Trump is a mercantilist—an economic philosophy repudiated in the long-ago past—he cares mightily about the U.S. trade balance, even if he doesn't understand its economic implications.

Trump tweeted this morning that the "Trade Deficit has been reduced by $52 Billion," as if that were a remarkable accomplishment. Setting aside questions of trade balance that are beyond Trump's ken and the time and space available here, it's worth noting that the U.S. experienced a surge of exports in the second quarter precisely because trading was revved up artificially ahead of the anticipated trade war and impending tariffs. A huge factor in GDP growth and the decline in the trade deficit was a surge in soybean exports, but as we have seen that's over and the situation is now reversed.

So no, Trump hasn't fixed the trade deficit.

Ok, then, what about those soybeans? Commentators have quipped that Trump breaks things and then takes credit for fixing what he has broken. Trump's tariffs and the resulting retaliation have broken things big time. He has definitely broken the soybean market, and now he's trying to fix it, but in ways that will have perverse consequences. Let's look.

There is no question that soybean farmers are getting hammered in Trump's trade wars. Prices are down by 20 percent or more, and farmers are hurting. It's said that "one in every three rows of U.S. soybeans is exported to China," which is by far the largest single buyer of U.S. beans. Or was. No more, though, and that's a market farmers are loathe to lose, because long-held trading relationships are precious and hard to replace. Other agricultural commodity prices are depressed too. An economist at Syracuse University notes that hog exports to China "have pretty much collapsed."

So the Trump administration has unveiled a $12 billion program to support farm prices, funded by the U.S. Treasury and thus by taxes paid by you and me. Sorry to inform you, but we will all pay for Trump's misadventures. And this illustrates why trade wars are so costly. Taxpayers will pay directly for mitigation efforts, and, further, consumers will pay higher prices for imported goods and, eventually, products such as automobiles that have a large percentage of imported parts. Because even imported machinery made to produce things is also burdened by tariffs, the price of most everything will eventually be affected. Tariffs even drive up the cost of purely domestic goods, such as U.S. produced steel.

The $12 billion farm aid program, an attempt to fix something Trump has broken, will be run through the Depression-era Commodity Credit Corporation, and will involve intervention in the commodities markets, direct payments to farmers, and the establishment of new markets. Remember how the government bought a lot of surplus cheese in the 70s to support milk prices? Kinda like that.

The farm aid program has caught a lot of flack, even from Republican politicians representing farm states. Senator Ron Johnson of Wisconsin said: "This is becoming more and more like a Soviet-type of economy here: Commissars deciding who’s going to be granted waivers, commissars in the administration figuring out how they’re going to sprinkle around benefits."

In other words, government bureaucrats will be picking winners and losers in the economic war that's unfolding. Conservative columnist George Will quotes conservative economist John Cochrane as saying the farm aid program is a "darker system, which leads to crony capitalism."

"Everyone depends on the whim of the administration," Cochrane writes. "Who gets tariff protection? On whim. But then you can apply for a waiver. Who gets those, on what basis? Now you can get subsidies. Who gets the subsidies? There is no law, no rule, no basis for any of this. If you think you deserve a waiver, on what basis do you sue to get one? Well, it sure can’t hurt not to be an outspoken critic of the administration when the tariffs, waivers and subsidies are being handed out on whim."

Will concludes that now "there is a Republican president who can teach [Alexandria] Ocasio-Cortez a thing or two about the essence of socialism, which is 10-thumbed government picking winners and losers and advancing the politicization of everything."

Trump has also sought to fix his broken soybean market by superficially fixing the trading relationship with the European Union, a relationship he has also broken.

As you know, Trump unadvisedly commenced a multi-front trade war, simultaneously picking fights with China, the E.U., and Canada. Yet another front could be opened with Mexico. Trump imposed import tariffs on European steel and aluminum, and the E.U. retaliated with tariffs on certain U.S. products such as Harley Davidson motorcycles, Kentucky bourbon, and others. That's the E.U. front.

Recently Trump and  European Commission president Jean-Claude Juncker agreed to not escalate further, at least not yet. No additional tariffs will be imposed by either side while negotiation proceeds. And Europe has agreed to import more U.S. soybeans and liquefied natural gas—something it had pretty much intended to do anyway. But the additional E.U. soybean imports, if they materialize, will not come close to replacing bean exports to China. There is actually a worldwide game of musical chairs going on, with Brazil now selling more beans to China, and Europe looking elsewhere for beans it would normally have bought from Brazil. Who knew soybeans could be so interesting? All this because of Trump's trade wars.

So Trump calmed one front of his trade war, "taking credit for solving a crisis of his own making." In seeking lower tariffs across-the-board, Trump is suddenly pursuing a negotiating tack with the E.U. that's almost identical to the approach taken by the Obama administration. The irony.

The  premise of this piece is that Trump fixes things, often things he has broken, and other things too, because fixing is what he does. As further evidence alongside all the breaking and fixing we've already seen, consider how Trump fixed NATO, in the span of just a couple of days. Trump-the-fixer achieved something past U.S. presidents have been unable to accomplish. Or so he says.

Trump entered the recent NATO summit with guns blazing, bashing member countries for not paying enough, slamming Germany's Angela Merkel, and calling the E.U. a "foe."  At the end of the summit Trump held an impromptu press conference in which he said all was well. Great, even.

Trump said that "yesterday, I let them know that I was extremely unhappy with what was happening, and they have substantially upped their commitment, yeah. And now we're very happy and have a very, very powerful, very, very strong NATO, much stronger than it was two days ago." Trump said NATO members "are paying money that they never paid before. They're happy to do it."

Just like that! Indeed, Trump said, members have coughed up an additional $33 billion, presumably thanks to his hectoring. "The people have stepped up today like they've never stepped up before," he said. This is what leadership looks like.

So what happened in those two days that caused such a dramatic turnaround? Answer: Nothing. Nothing at all, save for a reversal in Trump's rhetoric. Nothing but words emanating from Trump's mouth, entirely disconnected from concrete reality.

It's important to understand that members' commitments to NATO are not, as Trump often couches it, about paying but, rather, about spending. In 2014 NATO members agreed that members would spend at least 2 percent of national GDP on their national military budgets. Each country would spend at that level on its own defense, which would in turn redound to the benefit of NATO. Countries with more capable militaries would be able to more capably contribute to the defense of all.

In 2014 it was agreed that member countries would meet that 2 percent of GDP spending goal by 2024, and since then spending has indeed been increasing. But the agreement and the spending increases, which have been ongoing, predate Trump, and nothing he's done has affected the amount or the trajectory of those increases. Despite his press conference implications, Trump didn't shake down NATO members for additional funds during their two-day meeting, nor did he shake them down in their previous 2017 meeting.

There is not the slightest suggestion of any change in agreed-upon member spending evident in the joint Declaration signed by the summit attendees. Member spending is described in paragraph 3, which begins: "We reaffirm our unwavering commitment to all aspects of the Defence Investment Pledge agreed at the 2014 Wales Summit, and to submit credible national plans on its implementation, including the spending guidelines for 2024, planned capabilities, and contributions." Not only does the Declaration say nothing about Trump's claims, but the presidents of France and Italy both repudiated Trump's characterization of sudden and dramatic spending increases.

If anything, Trump did more to harm NATO than to fix it. At various points Trump has questioned whether the U.S. would defend certain members he deemed deadbeats, and even whether NATO itself remained important to the U.S. Such apparent ambiguity emanating from the U.S. president might well entice Russia to push its weight around in the Baltics in a manner similar to how it has been intervening militarily in Ukraine. Baltic states such as Latvia and Estonia are NATO members, but could be forgiven for being nervous about the firmness of Trump's support. Such ambiguity presents the possibility of a consequential miscalculation by Russia. And Trump's unhinged ramblings about made-up realities don't engender confidence in the U.S. as a reliable partner, but rather invite a WTF attitude among NATO countries who see no connection between the president's words and reality.

After his post-NATO press conference, Trump got on a plane to the U.K. During the flight he proceeded to criticize Britain's Prime Minister Theresa May in an interview with London's Daily Mail. Trump fixed that serious "protocol breach" by calling the story "fake news," even though audio of the interview backing the quotations in the article was publicly available.

So Trump breaks and fixes, fixes and breaks. He has been working mightily to break the private health insurance market. He is breaking the Iran nuclear deal the rest of the world supports. And most of the fixing is more mirage and mythology than real, as with NATO, soybeans, the job market, and economic growth. What's emerging is the myth of the great leader, master of all things—a myth founded on propagandistic assertions with no factual basis, and apparently none needed. Nowhere does a formal, official record follow the president's incoherent ramblings. There was never an official readout of his talks with Vladimir Putin in Helsinki. The Russians have been making claims about what the two presidents agreed to, but the U.S. is mum.

Which brings us finally to North Korea, a problem that U.S. presidents have struggled with for decades, and which Trump claims to have fixed. After his meeting with Kim Jong-Un, which truly was historic, Trump said there was no longer a nuclear threat from North Korea. If that isn't fixing, I don't know what is.

But it was an amazing claim, since nothing at all had changed except the two leaders had a nice talk and appeared to have gotten along. The scant two-page document that described their "agreement" was mostly aspirational, and much less specific than denuclearization agreements previously negotiated between the two countries. So the two formally agreed to something less than has been agreed to before. For its part, North Korea has broken every previous agreement, and experts see no reason to assume that this time will be any different.

Observers have noted that in some sense Trump has "fixed" yet another problem that he himself created with inflamed "fire and fury" rhetoric and name-calling, a situation that left many to fear that a real conflagration might be in the offing. Saying so does not imply that Trump is somehow responsible for North Korea's nuclear program or its decades of bad behavior—only that Trump himself is often as not a source of additional instability. And we should not fault Trump when we note that as 2017 proceeded, Trump "permitted" North Korea to attain ballistic missile capability. The principle fault was his early bluster that such a capability would not happen on his watch. It did happen, and he was completely incapable of stopping it. Welcome to reality. North Korea increased its capabilities enormously under Trump, and not a bit of it has been reversed.

The complaint here is that Trump always spikes the football long before reaching the endzone, and presents himself as the triumphant solution to all problems, to the adulation of his credulous followers. There is always more to Trump's self-aggrandizement than reality permits. The meeting between Trump and Kim was previously untried and possibly worth the risk, but it's important to recognize where we currently stand, which, as of this moment, is: nowhere much.

As far as the outside world and the American public can see, there is no concrete agreement of any kind between the two countries. It is unclear that North Korea and the U.S. mean the same thing when they speak of  "denuclearization." There is no indication at all about how denuclearization that is "complete and verifiable"—a longstanding U.S. demand—is expected to be achieved. There is no timetable nor metrics nor milestones. In the first high-level post-summit meeting between the two countries involving Secretary of State Mike Pompeo, North Korea criticized the U.S. as having a "gangster-like" attitude. Very recently Pompeo admitted that North Korea continues to produce fissile material.

For its part, North Korea has made "concessions" that are not concessions at all. It only stopped ballistic missile testing after it was confident it had perfected its technology, and only then did it offer to meet with the U.S. president. It destroyed its nuclear test site not as a concession, but because the site was becoming unusable because of multiple detonations. It recently began dismantling a satellite launch site because it didn't need it anymore. North Korea hasn't paused anything it wouldn't have paused anyway, and it certainly hasn't taken the slightest step backward.

Experts say that Kim Jong-Un has already gotten what he wanted. North Korea has sought bilateral talks with the U.S. for decades, and meeting personally the the leader of the world's superpower gives Kim the legitimacy he craves. With that accomplishment in his hip pocket, Kim has turned his attention back to his relationship with China.

It's likely as not that the North sees itself as a de facto member of the nuclear club, and will be loathe to relinquish its membership. Let's hope that real progress can yet me made, but let's also save our self-congratulations for when it's finally warranted. Nothing has yet been fixed. Not even close.

Copyright (C) 2018 James Michael Brennan, All Rights Reserved

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