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Trump’s Unfinished Business
If it were easy to create the conditions for America’s 1980s economic resurgence, then all presidents would be as admired as Ronald Reagan. In recent years the U.S. economy in the pre-Covid Trump era grew faster than it had during the Obama years, but it still didn’t approach the sizzling pace of the Reagan renaissance. After the 2017 Trump tax cut ignited a surge in capital investment, business confidence was restrained a bit by the Trump trade disputes with foreign governments.
The Tax Foundation estimates that Trump’s enacted and threatened tariffs, plus retaliatory tariffs imposed by other countries in response, offset nearly a third of the additional growth produced by his income tax reform. According to a February 2020 report from the organization’s Erica York, “Tariffs imposed so far by the Trump administration are estimated to reduce long-run GDP by 0.23 percent, wages by 0.15 percent, and employment by 179,800 full-time equivalent jobs.
“The administration’s outstanding threats to impose additional tariffs would, if acted upon, further reduce GDP by 0.24 percent, wages by 0.17 percent, and employment by 184,200 full-time equivalent jobs.”1
A big opportunity for Trump now is to reduce the economic drag from tariffs at least outside of China—keeping the pressure on Beijing while encouraging growth with all our other trading partners. In April 2020, President Donald Trump told James that he plans “a pause on new tariffs” other than ones related to China “for a short while.”2 The president hadn’t given up his belief that tariffs can be a valuable negotiating tool and a useful source of government revenue. But he was increasingly focused on encouraging a post-shutdown economic rebound and figured that this is not the moment to engage in new trade fights with allies. The “pause” has exceptions, including the reimposition of an earlier tariff on Canadian aluminum.
As for tariffs on imports from China, Mr. Trump said that, due to changes in the value of the Chinese currency, Chinese producers rather than U.S. consumers have been shouldering the burden. Given the destruction caused by the coronavirus, Beijing shouldn’t necessarily expect much progress in future trade discussions.3
But a pause on new tariffs outside China is at least a start in setting conditions for a global rebound. Even better would be a concerted effort to reduce tariffs and other trade barriers to zero among friends and allies. This is the bold and beautiful pro-growth idea that the president promoted at a G7 meeting in 2018. The world has never needed it more than right now, given the economic carnage resulting from mandated shutdowns across the globe. To be clear, we are not predicting that if reelected, Trump will stop using the tariff cudgel with countries beyond China. James urges against tariffs given the cost, while Maria views them as leverage that Trump uses to open foreign markets.
Trump may be using this leverage again given that he sees its recent application as a success—for example, when he used a tariff threat to force Mexican action to stem the flow of illegal border-crossers into the United States. In 2018 large caravans of migrants fled Central America, headed north, and attempted to cross into the United States. In June 2019 Trump threatened new tariffs unless Mexico deployed more troops to limit illegal migration through its territory. Trump tells us, “I said, ‘If you don’t stop the caravans, I’m going to charge you a 25 percent… tariff on your cars coming in and… all the stuff that you send us.… So stop the people.…’ On a Friday I said, ‘It starts on Monday.’ And they called, and we negotiated a deal.”4 Mexico agreed to deploy thousands of its National Guard troops throughout the country, and especially on its southern border with Guatemala.
Mexico has honored its side of the bargain and remains a good friend to the United States.
Also, even absent any further governmental action, many U.S. companies are looking to diversify their supply chains to avoid overreliance on China. Given the destruction caused by Covid-19—and the unconscionable conduct of the Chinese regime in attempting to hide evidence of the virus rather than warning the world—it’s impossible to argue that America’s medical supply chain should be entirely reliant on China.
Moving production of medical drugs, devices, and equipment will mean added costs, and tariff reductions in other locales can help offset the expenses of renovating supply chains.
The president’s playbook of tax cuts, deregulation, and supply chain moves can be a welcome first step toward creating the conditions for the next American surge in capital investment. A campaign to turn his 2018 G7 vision into reality could trigger another Trump jobs boom in the United States and a robust economic rebound worldwide. Nancy Lazar, cofounder of the investment research firm Cornerstone Macro, already sees a powerful trend of “onshoring” production and moving jobs back to the United States. Since the start of 2020 her firm counts more than one hundred companies shifting manufacturing to the United States. “This is the tip of the iceberg,” she told Maria, adding that capital spending is the “ugly duckling” of the economy “because it creates a beautiful thing. It creates jobs. When China started to join [the World Trade Organization] in 2001, our capital stock growth deteriorated. That destroyed the breadth of our job growth. That then lowered the prime age labor force participation rate. That then led to an increase in the number of people on disability. That then led to, obviously, a deterioration in real, real family income growth. We’re now seeing the reverse of all of that.”5
Even with the cost of trade fights, the Trump tax and regulatory reforms were so powerful that the pre-Covid Trump job market was still as good as it gets—or at least as good as it has ever gotten since the government began keeping track. In March 2018, the Labor Department released its regular Job Openings and Labor Turnover Survey, better known as the “Jolts” report. The feds reported
