Trump, Tax Cuts and Terrorism

Why do Republicans enable right-wing extremism?

Why has the Republican Party become a systematic enabler of terrorism?

Don’t pretend to be shocked. Just look at G.O.P. responses to the massacre in El Paso. They have ranged from the ludicrous (blame video games!) to the almost honest (who would have expected Ted Cruz, of all people, to speak out against white supremacy?). But as far as I can tell, not one prominent Republican has even hinted at the obvious link between Donald Trump’s repeated incitements to violence and the upsurge in hate crimes.

So the party remains in lock step behind a man who has arguably done more to promote racial violence than any American since Nathan Bedford Forrest, who helped found the Ku Klux Klan, a terrorist organization if there ever was one — and who was recently honored by the Republican governor of Tennessee.

Anyway, the party’s complicity started long before Trump came on the scene. More than a decade ago, the Department of Homeland Security issued a report warning about a surge of right-wing extremism. The report was prescient, to say the least. But when congressional Republicans learned about it, they went on a rampage, demanding the resignation of Janet Napolitano, who headed the agency, and insisted that even using the term “right-wing extremism” was unacceptable.

This backlash was effective: Homeland Security drastically scaled back its efforts to monitor and head off what was already becoming a major threat. In effect, Republicans bullied law enforcement into creating a safe space for potential terrorists, as long as their violent impulses were motivated by the right kind of hatred.

No, not exactly. No doubt some members of Congress, and a significant number of Trump administration officials, very much including the tweeter in chief, really are white supremacists. And a much larger fraction — almost surely bigger than anyone wants to admit — are racists. (Recently released tapes of conversations between Ronald Reagan and Richard Nixon reveal that the modern G.O.P.’s patron saint was, in fact, a crude racist who called Africans “monkeys.”)

But racism isn’t what drives the Republican establishment, and my guess is that a majority of the party’s elected officials find it a little bit repugnantjust not repugnant enough to induce them to repudiate its political exploitation. And their exploitation of racism has led them inexorably to where they are today: de facto enablers of a wave of white supremacist terrorism.

The central story of U.S. politics since the 1970s is the takeover of the Republican Party by economic radicals, determined to slash taxes for the wealthy while undermining the social safety net.

With the arguable exception of George H.W. Bush, every Republican president since 1980 has pushed through tax cuts that disproportionately benefited the 1 percent while trying to defund and/or privatize key social programs like

  • Social Security,
  • Medicare,
  • Medicaid and the
  • Affordable Care Act.

 

  • believe that the rich should pay more, not less, in taxes, and
  • want spending on social programs to rise, not fall.

So how do Republicans win elections? By appealing to racial animus. This is such an obvious fact of American political life that you have to be willfully blind not to see it.

For a long time, the G.O.P. establishment was able to keep this game under control. It would campaign using implicit appeals to racial hostility (welfare queens! Willie Horton!) but turn postelection to privatization and tax cuts.

But for some reason this bait-and-switch started getting less effective in the 2000s. Maybe it was the reality of America’s growing racial diversity; maybe it was the fact that American society as a whole was becoming less racist, leaving the hard-core racists feeling isolated and frustrated. And the election of our first black president really kicked hatred into overdrive.

The result is that there are more and more angry white people out there willing to commit mayhem — and able to do so because those same Republicans have blocked any effective control over sales of assault weapons.

A different, better G.O.P. might have been willing to acknowledge the growing threat and supported a crackdown on violent right-wing extremism, comparable to the F.B.I.’s successful campaign against the modern K.K.K. in the 1960s. A lot of innocent victims would be alive today if Republicans had done so.

But they didn’t, because admitting that right-wing extremism was a threat, or even a phrase law enforcement should be allowed to use, might have threatened the party’s exploitation of racial hostility to achieve its economic goals.

In effect, then, the Republican Party decided that a few massacres were an acceptable price to pay in return for tax cuts. I wish that were hyperbole, but the continuing refusal of G.O.P. figures to criticize Trump even after El Paso shows that it’s the literal truth.

So as I said at the beginning, the G.O.P. has become a systematic enabler of terrorism. Why? Follow the money.

Why Was Trumponomics a Flop?

Neither tax cuts nor tariffs are working.

Donald Trump has pursued two main economic policies. On taxes, he has been an orthodox Republican, pushing through big tax cuts for corporations and the wealthy, which his administration promised would lead to a huge surge in business investment. On trade, he has broken with his party’s free(ish) trade policies, imposing large tariffs that he promised would lead to a revival of U.S. manufacturing.

On Wednesday, the Federal Reserve cut interest rates, even though the unemployment rate is low and overall economic growth remains decent, though not great. According to Jay Powell, the Fed’s chairman, the goal was to take out some insurance against worrying hints of a future slowdown — in particular, weakness in business investment, which fell in the most recent quarter, and manufacturing, which has been declining since the beginning of the year.

Obviously Powell couldn’t say in so many words that Trumponomics has been a big flop, but that was the subtext of his remarks. And Trump’s frantic efforts to bully the Fed into bigger cuts are an implicit admission of the same thing.

To be fair, the economy remains pretty strong, which isn’t really a surprise given the G.O.P.’s willingness to run huge budget deficits as long as Democrats don’t hold the White House. As I wrote three days after the 2016 election — after the shock had worn off — “It’s at least possible that bigger budget deficits will, if anything, strengthen the economy briefly.” And that’s pretty much what happened: There was a bit of a bump in 2018, but at this point we’ve basically returned to pre-Trump rates of growth.

Republican faith in the magic of tax cuts — and, correspondingly, belief that tax increases will doom the economy — is the ultimate policy zombie, a view that should have been killed by evidence decades ago but keeps shambling along, eating G.O.P. brains.

The record is actually awesomely consistent.

  • Bill Clinton’s tax hike didn’t cause a depression,
  • George W. Bush’s tax cuts didn’t deliver a boom,
  • Jerry Brown’s California tax increase wasn’t “economic suicide,”
  • Sam Brownback’s Kansas tax-cut “experiment” (his term) was a failure.

Nevertheless, Republicans persist. This time around, the centerpiece of the tax cut was a huge break for corporations, which was supposed to induce companies to bring back the money they’ve invested overseas and put the money to work here. Instead, they basically used the tax savings to buy back their own stock.

What went wrong? Business investment depends on many factors, with tax rates way down the list. While a casual look at the facts might suggest that corporations invest a lot in countries with low taxes, like Ireland, this is mainly an illusion: Companies use accounting tricks to report huge profits and hence big investments in tax havens, but these don’t correspond to anything real.

What about the trade war? The evidence is overwhelming: Tariffs don’t have much effect on the overall trade balance. At most they just shift the deficit around: We’re importing less from China, but we’re importing more from other places, like Vietnam.

And there’s a good case to be made that Trump’s tariffs have actually hurt U.S. manufacturing. For one thing, many of them have hit “intermediate goods,” that is, stuff American companies use in their production processes, so the tariffs have raised costs.

Beyond that, the uncertainty created by Trump’s policy by whim — nobody knows what he’ll hit next — has surely deterred investment. Why build a manufacturing plant when, for all you know, next week a tweet will destroy your market, your supply chain, or both?

Now, none of this has led to economic catastrophe. As Adam Smith once wrote, “There is a great deal of ruin in a nation.” Except in times of crisis, presidents matter much less for the economy than most people think, and while Trumponomics has utterly failed to deliver on its promises, it’s not bad enough to do enormous damage.

On the other hand, think of the missed opportunities. Imagine how much better shape we’d be in if the hundreds of billions squandered on tax cuts for corporations had been used to rebuild our crumbling infrastructure. Imagine what we could have done with policies promoting jobs of the future in things like renewable energy, instead of trade wars that vainly attempt to recreate the manufacturing economy of the past.

And since everything is political these days, let me say that pundits who think that Trump will be able to win by touting a strong economy are almost surely wrong. He most likely won’t face a recession (although who knows?), but he definitely hasn’t made the economy great again.

So he’s probably going to have to do what he’s already doing, and clearly wants to do: run on racism instead.

Trump Is Losing His Trade Wars

The pain is real, but the coercion isn’t.

Donald Trump’s declaration that trade wars are good, and easy to win will surely go down in the history books as a classic utterance — but not in a good way. Instead it will go alongside Dick Cheney’s prediction, on the eve of the Iraq war, that “we will, in fact, be welcomed as liberators.” That is, it will be used to illustrate the arrogance and ignorance that so often drives crucial policy decisions.

For the reality is that Trump isn’t winning his trade wars. True, his tariffs have hurt China and other foreign economies. But they’ve hurt America too; economists at the New York Fed estimate that the average household will end up paying more than $1,000 a year in higher prices.

And there’s no hint that the tariffs are achieving Trump’s presumed goal, which is to pressure other countries into making significant policy changes.

What, after all, is a trade war? Neither economists nor historians use the term for situations in which a country imposes tariffs for domestic political reasons, as the United States routinely did until the 1930s. No, it’s only a “trade war” if the goal of the tariffs is coercion — imposing pain on other countries to force them to change their policies in our favor.

All the tariffs Trump imposed on Canada and Mexico in an attempt to force a renegotiation of the North American Free Trade Agreement led to a new agreement so similar to the old one that you need a magnifying glass to see the differences. (And the new one may not even make it through Congress.)

And at the recent G20 summit, Trump agreed to a pause in the China trade war, holding off on new tariffs, in return, as far as we can tell, for some vaguely conciliatory language.

But why are Trump’s trade wars failing? Mexico is a small economy next to a giant, so you might think — Trump almost certainly did think — that it would be easy to browbeat. China is an economic superpower in its own right, but it sells far more to us than it buys in return, which you might imagine makes it vulnerable to U.S. pressure. So why can’t Trump impose his economic will?

There are, I’d argue, three reasons.

First, belief that we can easily win trade wars reflects the same kind of solipsism that has so disastrously warped our Iran policy. Too many Americans in positions of power seem unable to grasp the reality that we’re not the only country with a distinctive culture, history and identity, proud of our independence and extremely unwilling to make concessions that feel like giving in to foreign bullies. “Millions for defense, but not one cent for tribute” isn’t a uniquely American sentiment.

In particular, the idea that China of all nations will agree to a deal that looks like a humiliating capitulation to America is just crazy.

Second, Trump’s “tariff men” are living in the past, out of touch with the realities of the modern economy. They talk nostalgically about the policies of William McKinley. But back then the question, “Where was this thing made?” generally had a simple answer. These days, almost every manufactured good is the product of a global value chain that crosses multiple national borders.

This raises the stakes: U.S. business was hysterical at the prospect of disrupting Nafta, because so much of its production relies on Mexican inputs. It also scrambles the effects of tariffs: when you tax goods assembled in China but with many of the components from Korea or Japan, assembly doesn’t shift to America, it just moves to other Asian countries like Vietnam.

Finally, Trump’s trade war is unpopular — in fact, it polls remarkably poorly — and so is he.

This leaves him politically vulnerable to foreign retaliation. China may not buy as much from America as it sells, but its agricultural market is crucial to farm-state voters Trump desperately needs to hold on to. So Trump’s vision of an easy trade victory is turning into a political war of attrition that he, personally, is probably less able to sustain than China’s leadership, even though China’s economy is feeling the pain.

So how will this end? Trade wars almost never have clear victors, but they often leave long-lasting scars on the world economy. The light-truck tariffs America imposed in 1964 in an unsuccessful effort to force Europe to buy our frozen chickens are still in place, 55 years later.

Trump’s trade wars are vastly bigger than the trade wars of the past, but they’ll probably have the same result. No doubt Trump will try to spin some trivial foreign concessions as a great victory, but the actual result will just be to make everyone poorer. At the same time, Trump’s casual trashing of past trade agreements has badly damaged American credibility, and weakened the international rule of law.

Oh, and did I mention that McKinley’s tariffs were deeply unpopular, even at the time? In fact, in his final speech on the subject, McKinley offered what sounds like a direct response to — and rejection of — Trumpism, declaring that “commercial wars are unprofitable,” and calling for “good will and friendly trade relations.”