The Re-Election Economy

It’s not news that President Trump has had historically poor performance approval rates, running pretty consistently at net negative-10. That is despite overall good scores on the economy, where he scores a net positive-10. The argument could easily be made that poor approval rate would be catastrophically bad if those approval rates on the economy dipped. Which lends to the point that the biggest threat to the 2020 re-election campaign is not any of the democrats, but the economy.

And there has been volatility in that regard lately, due in part to the continued trade war with China, a trade war that is rare since the end of World War II.

There is a formal grievance case with China. The official justification in the Sec. 301 case–China has kept us from the full benefit of trading relations. No specific allegations, however. Just “we believe they are engaged in unfair practices.” The main arguments have centered around intellectual property, how multinatural companies are treated within China, and allegations of cybertheft. There have also been bipartisan complaints of practices of depressing global price of steel, keeping certain industries closed off to foreign companies.

Fair to say something did need to be done. A list of complaints has been there for quite some time.

One Trump has pointed to often, however, doesn’t fit. You can take currency manipulations off the table. US treasury, IMF, and mainstream economist say there was some basis for accusations of currency manipulation prior to the global financial crisis in 2008. Since, it has tried to stabilize the RMB despite pressure on the currency to fall. So, for the last 10 years, China has actually done the exact opposite of what Trump accuses them of. A falling currency would make exports easier for them, and Trump wants to hurt their exports right now. Global market wants to sell RMB, pushing it down still. Basically, manipulation charges were valid at one time, but have not been for a decade now. Our administration is out on its own on this one. Since the Great Recession in 2008, China has helped stimulate the global economy, helping to get the economy going again.

We are in a 10-year economic expansion right now, which is longer than most. It is also one of the reasons you can’t simply declare a few years the “Obama Economy” or the “Trump Economy”, although you can look at the individual decisions that played into those years. Would we have recovered in 2008 without Obama? Probably. Did the 2008 stimulus help jump start it? Absolutely. Are we looking at a recession in the next couple of years? Probably. Are we exasperbating it with sanctions? Absolutely. They have been described as Weapons of Mass Disruption.

On IP allegations, there is a lot of evidence against China on this one. They have gotten aggressive with reverse engineering at a minimum, outright theft at the maximum. This was something that was addressed in the TPP agreement. When Trump pulled out of that, we lost our means of ramifications.

On China not allowing access to the Chinese economy–every shot we have at successfully solving this requires us to cooperate with other advanced technology allies. Going it alone, we lose leverage. And right now, we are trying to go it alone. Japan and EU have tried to recruit the US into unilateral tactics, but so far we have not cooperated.

To the Chinese, our list of demands look like we are seeking a complete overhaul and regime change. They need to be more focused. No other countries are following in our footsteps, letting us take the economic brunt.

Effects of the current trade war–The US economy has slowed, albeit still growing. Our growth last quarter was 2.1 percent. China is also slowing. Their last quarter growth rate was reported at 6.1 percent. Both has slowed in their growth. In the US, job growth and manufacturing growth has basically stopped. That is not a good sign for someone trying to use tariffs to create jobs. We are an economy living off consumer spending, which can be fickle. Indicators of future slowing is already there–auto sales have softened, spending growth has slowed already. In China, they have gone heavy on infrastructure to help prop up their economy.

As for the tax cuts while the economy was rolling along, I’ve heard one economist describe it as giving a healthy patient a shot of adrenaline.

Some fool once said trade wars were easy to win. To win a trade war, one country, notably larger, has to intimidate another country into giving relatively favorable terms on imports. With two large countries, like say the US and China, it is nearly impossible to win one, even if one takes in significantly more than the other in trade. They generally lead to both countries having less. Think it is easy to win, check out this simulator. Simply put, too many people are willing to take the hit rather than capitulate.

On who is paying for the tariffs, Trump continues to lie, repeating it often in the hopes that it catches on with those who don’t know better. It is a strategy that worked often for him, but that one has thankfully caught on less than other lies. We have seen the farmers struggling with price drops, we have seen import prices go up, we have seen tariff treasury revenue coming from US companies paying higher prices.

Trump essentially acknowledged as much through policy when he threatened more tariffs, then backed off until stores are stocked up for Christmas. In that batch of products are consumer electronics, footwear and game consoles. His tweets say one thing, the policy says another. We’ll see if he actually follows through in December. It would not be surprising to see them go back to the tactic of claiming victory by getting something “done” that was already agreed to before the threat. It’s fooled enough people before.

The best way to stop this all from happening will sadly be the market. Enough people confuse the Dow for the economy, including the president. He is driven by it, he reacts to it. He watches it react to him. The Dow and Fox & Friends.

All of this circles back to the 2020 election. The Republicans have embraced the Trumpicans on several things in the name of the economy. Free trade, however, is one area where they diverge, and Trump sides more with the old school Democrats. It is one area where the money guys in the party diverge and leave the Trumpicans on their own. The question is, will he push it far enough to completely lose the old Republicans, or will they still be able to rationalize enough to maintain his base at a large enough rate to win again. It also may depend on who wins the Democratic nomination. Sanders and Warren side more with the Trump plan. The more moderate candidates do not. Still, an economic dip before next November would likely lead to a new President. I will not go full Maher and root for that, however. I still hold out hope for sensibility, for some stupid reason.

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