MORICI: Economy delivers troubling news for Trump re-election | Toronto Sun
The U.S. economy just delivered bad news to the White House — the Trump miracle economy is over. Second-quarter growth was a paltry 2.1%, and the American machine is unlikely to deliver significant wage increases, booming corporate profits and double-digit stock market gains in the months ahead.
Lacklustre economies sunk the reelection hopes of Jimmy Carter and George H.W. Bush. U.S. President Donald Trump’s polarizing debate with socialist Democrats, and the pain inflicted on Midwestern farmers by Chinese retaliation against his tariffs make matters worse.
Many forces, having nothing to do with who occupies the Oval Office, negatively affect U.S. growth — his trade wars notwithstanding, China and Europe are stuck in the mud and saddled by political dysfunction.
President Xi Jinping’s strategy for dictatorial control penalizes private companies and entrepreneurs to boost its highly inefficient state-owned enterprises. Germany’s trade surpluses require southern EU states to endure endless growth sapping trade deficits, and German and Italian banks are in terrible shape.
Granted, the U.S. economy is creating lots of jobs, but America spends badly on labour force training. Universities graduate fewer than 60% of their students and inadequately prepare for high-skill work many who manage to get a diploma. Trump’s learn while you earn private-sector apprenticeships are a great answer, but parents simply won’t accept not everyone should go to college.
Those alibis are not enough, however, and the president and his top advisers — National Economic Council Director Kudlow and Treasury Secretary Mnuchin — need some soul searching.
On the demand side, growth must be driven by consumers spending, businesses investing and fixing the trade deficit — the latter sends too many consumer dollars abroad that don’t come back to purchase U.S. goods.
Consumer spending has proven robust but is shifting away from big-ticket autos to high-tech gadgets, Uber and other services. Notably, a good deal of the job growth is low-skilled occupations and highly-skilled occupations — the middle is hollowing out. Small wonder a good deal of poorly trained college diplomates end up at venues like Starbucks and income inequality worsens — sorry Sen. Elizabeth Warren, that social malady is not a devious scheme cooked up in monopoly bank and corporate boardrooms.
What ails the economy most is foreign protectionism and the status of the dollar — it is increasingly the currency used by businesses to transact international trade, even when Americans are not involved and by foreigners to invest their savings. Well-off Italians and Brazilians would be nuts not to stash some of their wealth in dollar-denominated assets and that pushes up the value of the dollar against other currencies.
The Americans’ principal competitors — China, Japan and Germany — have growth policies premised on undervalued currencies that cheapen exports and protect domestic manufacturing — but Trump’s trade war is a bust. The trade deficit is up over $100 billion on his watch.
Efforts to pressure China are delivering a stalemate, because he refuses to deliver the knockout punch.
China’s economy has been hurt by tariffs but not so much that president Xi can’t punt until after the 2020 elections. Doing so could elect a Democrat more enamoured by Middle Kingdom socialism than interested in compelling it to behave like a civilized nation.
Multinationals are diversifying supply chains from China. Despite the promises of Trump trade adviser Peter Navarro, factories have moved to other Asian locations. Consequently, American businesses are investing their tax-cut money abroad and U.S. imports of manufactures are shifting their origins rather than creating new jobs here. Meanwhile, Chinese retaliation has pushed down U.S. exports.
The net effect is a bigger trade deficit that is an even bigger drag on U.S. growth and jobs.
Not able to get China off the table, Trump can’t take on German and Japanese mercantilism — once and for all.
Tweeting and telling voters what a great relationship he has with dictators and human rights abusers like Xi only works when you want to become president. More than bravado and halfway measures are needed to fix what’s broke with the American economy
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.
This content was originally published here.