The following is an editorial by The Mankato Free Press.
Many Americans who voted for Donald Trump generously overlooked his character flaws with the hope a businessman could bring the economy back and as Trump says, “make it great again.”
But so far, the evidence suggests there is not much greatness, and economic indicators are hovering decidedly around mediocre or worse. The people making those assessments are not exactly leftist Democrats.
The Federal Reserve Board of Governors said at its June meeting that some businesses were already pulling back investments in jobs and equipment because of the “uncertainty over U.S. trade policy.” The nation’s top bankers said the trade policy was already hurting the stock market and could hamper economic growth.
While U.S. economic growth in the first quarter of 2018 was 2 percent, the best since 2015, the Fed also expects growth rates to come back to more normal rates in 2019 as the deficit balloons from $665 billion to an estimated $1 trillion, an increase of nearly 50 percent.
Tax cuts, passed just before Christmas, which provided 14 percent to 20 percent reductions in corporate tax rates and large increases in business deductions for capital spending, so far haven’t spurred huge gains in wage growth or business investment.
Morgan Stanley’s index of business capital spending reported a drop in capital spending recently and said the U.S. was “past the peak” in capital spending by business, according to a report in the Washington Post. Spending on equipment by business is lower now than it was last year and overall business investment was growing at 6.3 percent annually, the same as the last quarter of 2017.
And while some companies appeared to pass on some of their corporate tax rate savings to employees in bonuses, average wage growth in the U.S. has been stagnant over the last year.
“Yes, we are at full employment, but we are still seeing wage stagnation,” said Aparna Mathur, a resident scholar in economics at the conservative American Enterprise Institute, in the Post report.
The U.S. Chamber of Commerce, various industry groups, and the Federal Reserve have all pointed to Trump’s threatened trade war for creating uncertainty among business who are increasingly using their tax cuts not to hire workers but to buy back their own stock and increase dividends to shareholders.
Stock buybacks have increased 40 percent in the first quarter of 2018 compared to the last quarter of 2017 hitting $189 billion, beating the all-time high set in 2007, according to Howard Silverblatt of S&P Dow Jones Indices.
And farmers know all too well what’s happening to soybean prices as China imposes 25 percent tariffs. Soybean prices have dropped 18 percent since Trump initiated trade disputes with China, Mexico, Canada and the European Union.
And while the Dow Jones Industrial Average was up as much as 7 percent this year in January, it has lost all of that since and is now down by about 3 percent.
Former Trump top economic advisor Gary Cohn defends the strategy of tax cuts, saying businesses put a lot of thought into making big purchases and it takes time, but he also concedes a trade war could wipe out all the gains provided by tax cuts.
Trump is good at saying everything’s fine when the facts say otherwise. There will come a time when he won’t be able to fool all of the people all of time.
Republished with permission.
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