Team Trump is cornered: summits and trade deficits
Most US presidents find somewhere to go when domestic politics isn’t going their way. Last week’s Singapore summit doesn’t fit that template, but it should, given the state of the US domestic economy.
Numbers released by the Bureau of Labor Statistics reveal that wage growth in the US remains down. The BLS revealed that on a constant monthly basis, inflation-adjusted hourly pay is stagnant. That means dollar wages for both the private sector and for US domestic manufacturing remain in recession.
This isn’t news to those who follow the economy, but we’re down now for two straight quarters. It remains too early to judge how these rates of subpar growth will impact midterm elections.
This stands in contrast to the Federal Reserve chairman Jerome Powell’s revelation that the US economy is doing “very well”. If you judge by the metrics used by the Federal Reserve, inflation and the headline unemployment rate, then Powell is correct. However, if one looks at the key metric used to measure economic performance, you see something entirely different.
The final arbiter used by economists to measure economic growth is labor productivity. Strong productivity growth guarantees rising living standards, while underwriting credible future prosperity. Last week’s productivity number isn’t very good; in fact it dovetails with trends in US manufacturing mentioned above.
The BLS stated that output per person for non-farm business growth remains stuck in abnormally slow growth. This metric reveals a third continued drop over the last five quarters. Donald Trump is in the middle of his second year as president, and he’ll need to deliver faster growth if he wishes to fortify credible political bulwarks against encroaching domestic enemies.
The first place to start would be to continue destroying the administrative state and its regulatory mandates that constrain growth. That means making sure that every single cabinet member has harnessed the power of liberalizing the republic by streamlining all initiatives to fortify decentralized federalism.
The second place issue to deal with is oil. The US economy continues to suffer from bottlenecks throughout the Permian Basin; eliminating them by finding new consumers for petroleum products or liquefied natural gas would help.
Last, let the dollar appreciate. This remains anathema to all Keynesian types, but the workers and risk takers need to see a requisite payoff if they are going to continue to invest in heavy-capital projects.
It’s late for Trump – the numbers on the economy remain dismal, but he can deliver a win if he stops performing forced errors. That means backing off from trade tariffs against China.
After Trump formally declares tariffs, his trade representative has 30 days to implement them after the law appears in the Federal Register.
Damaging US policy aside, the president really deserves credit for recognizing that Chinese predatory behavior hasn’t been susceptible to US diplomacy or engagement, leaving Beijing with a wide array of predatory mercantilist trade and investments programs that culminate in Made in China 2025.
Lessons from abroad
What did Trump learn at the summit? He learned that America’s Asian allies aren’t serious about making significant multilateral efforts to combat Beijing’s predatory economy, or its diplomatic or military behavior. With an ineffective World Trade Organization, US efforts aren’t supplemented abroad.
Trump also learned that anything given up by Beijing related to US trade deficits will not immediately pay off to US consumers. Team Trump learned the hard way that any opening of China to foreign direct investment will only contribute to a greater deficit; a pullout of US investment in China will be immediately replaced by other nations. As well, Team Trump learned to pay more attention to the constituent components that make up US trade deficits.
What does this mean for Trump short-term?
It means he must return home to deal with important ancillary matters that constitute the US trade deficit: supply chains, patterns of investment and savings, exchange rates, differential production advantages, and finally, the relative mixture of growth rates among competing nations.
What it means is daunting to any ruling executive. Team Trump remains cornered and no amount of foreign posturing will fix it.