<blockquote class=”twitter-tweet” data-lang=”en”><p lang=”en” dir=”ltr”>China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day – taking away our big competitive edge. As usual, not a level playing field…</p>— Donald J. Trump (@realDonaldTrump) <a href=”https://twitter.com/realDonaldTrump/status/1020287981020729344?ref_src=twsrc%5Etfw”>July 20, 2018</a></blockquote>
<script async src=”https://platform.twitter.com/widgets.js” charset=”utf-8″></script>And yet, both his tax cuts and trade war are contributing to these dynamics.
- You juice the economy at full employment with a deficit-financed, $2 trillion tax cut, and the Fed’s naturally going to ramp up their concerns about overheating.
- At the same time, the extra fiscal impulse is leading to stronger U.S. growth, relative to that of our trading partners, and that, too, puts pressure on both the dollar and the trade deficit.
- Meanwhile, tariffs tend to reduce the circulation of dollars in foreign exchange markets, yet another pressuring factor of the value of the greenback.
The figure below, an index of the value of the dollar against a basket of foreign currencies, shows the dollar beginning its most recent appreciation around when the first salvos of the trade war hit. Relatedly, as Trump’s tweet mentions, the Chinese yuan is falling sharply against the dollar, down about 7 percent since April, a movement that directly offsets that same amount of Trump’s tariffs.
In other words, the president has a point. But while part of this is what he gets from inheriting a strong economy — something I suspect he wouldn’t trade — part of it is because of his and his party’s actions.
.. The Fed is different, as its independence from politics is so vital. There are many sad examples of countries whose economies did a lot worse than they should have because their central banks became an arm of the government.
.. That said, I’m not reaching for the vapors. I really wouldn’t want to see Trump ratchet up his Fed critiques to a regular feature of his daily rants.
.. So, if you’re listening, Mr. President, no point in whining about a currency appreciation to which you’re contributing. Whine as you might, you can’t have a “great economy” closing in on full employment, an independent Fed, a big tax cut, a trade war — and a falling dollar.
Dependent on trade, Mike Pence’s hometown takes a hit due to Trump’s tariffs
One company and one family loom large over this city, intertwined for decades. Cummins Inc. is the biggest employer in Columbus, built into a $20 billon heavy equipment manufacturer with the help of Mike Pence, who as governor passed pro-business tax cuts and made trade visits to China on its behalf.
.. Pence’s older brother Edward joined Cummins after graduating from college and worked there for four decades, running one of its most lucrative engine plants
.. According to the Brookings Institution, the Columbus area is the most export-reliant region in the country, with just over half of its economic output linked to foreign purchases.
.. Pence’s hometown oozes internationalism: 40 foreign companies have a presence, more than half of them Japanese engines and auto-parts plants, employing almost 10,000 people. The area’s schools collectively speak 51 languages. The city ranks second in the nation in the per capita percentage of H-1B visas for foreign workers.
.. Cummins plants produced the drill that powered the famous rescue of Chilean miners in 2010 and the emergency generator at the Statue of Liberty.
.. The Cummins plants, which produce engines, generators and other equipment, epitomize how deeply international trade has become rooted in cities and towns throughout the nation. Cummins alone has 25,000 different suppliers and also its own chain of distribution, both of them largely international. Its U.S. base is bolstered by operations in the United Kingdom, China and India.
.. Linebarger said the president’s trade war hits the company in two ways, affecting both its incoming parts, which will be subject to tariffs, and its own products, on which retaliatory penalties will be assessed by countries targeted by Trump.
.. For Cummins, the two most corrosive tariffs will be those assessed on steel and aluminum
.. one of our biggest projects in recent times was canceled because of steel prices
.. “It would take some time to produce our materials here. We fear Taiwan will swoop in and take the competition away from us,”
.. Cummins has applied to the White House for an exemption from the tariffs. Three GOP House members in Indiana — Reps. Jim Banks, Susan Brooks and Jackie Walorski — joined more than a hundred House Republicans in expressing “deep concern” about tariffs in a letter to Trump in March that requested a series of exemptions.
.. “Tariffs are not just hitting people in places like Columbus, it’s also farms which make soy beans and corn,” she said.
.. Pence has run a muted campaign, refusing to attend candidate debates and declining to release a public schedule. His most public comments so far came when he defended himself after it was revealed that his gas station company’s bankruptcy had cost taxpayers $20 million in contamination costs.
.. His views on tariffs are nevertheless clear: his website says he fully backs the “Trump-Pence agenda” and favors a “level playing field” when it comes to international trade. Neither Greg Pence nor the vice president responded to requests for comment, but the administration in the past has said the tariffs may produce pain but are necessary for future economic growth.
.. Most of our parts come from China. I think we’re gonna feel this trade war a whole lot faster than what people are saying. There’s a saying, ‘Trust God, everyone else bring data.’ I don’t think we’re doing that.”
Trump, The President, Isn’t Such A Great Businessman
‘The One Thing He Brought to the Job as an Advantage Is Unraveling’
.. the president is choosing older manufacturing and mining goals instead of preparing for a future where the U.S. needs to compete in the arenas of AI, artificial intelligence, and non-fossil fuel energy sources.
.. This president is impulsive, has no specific agenda and tends to go back to moves that serve his most loyal base by acting first and then perhaps later actually making a big tack work as policy. These characteristics are reflected in wildly cowboy-like actions to expand tariffs on Chinese imports by another $100 billion.
.. That these Trump-style, disruptive actions may lead to unintended results in the stock market, among American farmers and manufacturers who depend on imported steel and aluminum and for consumer prices, well, that strikes me as something of a different order. If Mr. Art of the Deal is as much a savvy businessman as he thinks he is, he ought to be able to predict what happens when he fiddles with the levers of the U.S. economy.
.. So, my first gripe of the day is: Making unilateral policy when you don’t know where the actions will lead.
My second gripe of the day is: Where are the Republican congressional leaders? The silence, once again, speaks volumes. Where is the oversight over all this?
.. this president refuses to heed economic learning just as he rejects science in general. And he refuses to listen to advisers who simply are unable to persuade him of the likely outcomes of actions.
.. Why does Trump believe that faced with higher consumer prices on all sides, in China, America, Europe and the rest of Asia, that China will reform its ways? What they do in Beijing has been working pretty well for them. But even more, why does Trump believe suddenly that China will limit its responses to trade issues alone, that it will not reach into a more complete diplomatic, financial and strategically military response as well?
.. he has failed to share his income taxes because he wants to keep some aspect of the tax returns extremely private either because the returns show he has cheated or that he is not worth what he says he is. I realize that Trump’s negotiating style is just as much at issue as the policy he seeks to win.
.. Data show that, as this column predicted, companies are choosing to spend more money on
- debt retirement,
- stock buybacks and
- technology investments
than on job creation.
.. The very fact that the White House has been given the assignment to calm nerves should say a lot about how reckless the tariff approach is proving to be.
U.S. Consumer Price Increases Are Eating Away Worker Wage Gains
For the second month in a row, annual inflation fully offset workers’ average hourly wage growth
For a second month in a row, annual inflation fully offset average hourly wage growth in June, leaving workers’ real hourly earnings flat from a year earlier despite falling unemployment and a generally strong economy. Production and nonsupervisory employees, a category which includes blue-collar workers, saw their real average hourly wages fall 0.2% in June from a year earlier after a similar slip in May.
.. While workers made up for higher prices by working slightly more hours per week, the stagnation of Americans’ purchasing power underscores questions about the extent to which workers are benefiting from an economy that by many other measures is booming.
.. “Wage growth remains surprisingly weak,” said David Kelly, chief global strategist at J.P. Morgan Asset Management, in a note to clients earlier this week. “The remarkable ability of firms to lure more workers back into the labor force and get stronger productivity gains from them without raising wages is a clear positive for profits.”
.. in June, Fed “participants generally agreed that the economic expansion was progressing roughly as anticipated, with real economic activity expanding at a solid rate, labor market conditions continuing to strengthen, and inflation near the Committee’s objective,” according to meeting minutes released last week.
Economists said Thursday’s data generally supported their view that inflationary pressures are gradually picking up.
.. The impact of those tariffs, should they take effect, won’t be negligible, economists say.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the goods subject to the proposed tariffs account for almost 6% of the core CPI, meaning that a 10% levy would lift the index by up to 0.6 percentage point.
.. “The Fed can’t stand back and ignore a hit of this size, given the tightness of the labor market,” Mr. Shepherdson said in a note to clients dated Thursday. “People will seek to be compensated for the squeeze on their real incomes as a result of higher prices, and their chance of being able to force employers to pay up is better now than at any time since the crash.”