June 29, 2018

A Booming Economy, but Tariffs

The flap over Harley-Davidson reveals the dark cloud in an otherwise bright economy.

So this is what an economic boom looks like.

Unemployment numbers for women, blacks and Hispanics are at the lowest levels in decades if not in history. Money is pouring back into the country from overseas. Small business optimism is soaring. Consumer confidence is sky-high. Wages are growing.

President Donald Trump’s decision in 2017 to support Republicans’ dramatic decrease in the corporate tax rate, from 35 to 21%, has paid off significantly for the American economy. Not to mention the reduction in income tax rates for individuals and deregulation that’s created a business-friendly environment like some have never seen.

One of the benefits of Trump’s economy is the influx of money from abroad.

Investor’s Business Daily reports, “American companies were commonly estimated to have about $2.6 trillion parked in overseas accounts as of 2017. So in the first three months of 2018 alone, some 12% of that overseas stash came back to the U.S. It’s now available here for companies to invest, pay out in dividends and bonuses, hire new workers, purchase new plants and equipment, or just buy back stock.”

In real numbers, the Bureau of Economic Analysis reported that more than $300 billion was returned to accounts in the United States from overseas — on pace for more than $1 trillion this year.

So much for the dire warnings of House Minority Leader Nancy Pelosi, who harshly derided the Tax Cuts and Jobs Act of 2017 as a “scam” that was “simply theft, monumental, brazen theft from the American middle class and from every person who aspires to reach it.” She added that the “GOP tax scam is not a vote for an investment in growth or jobs.”

“Crumbs.” That’s what she called the $1,000-, $2,000- and $3,000 bonuses that many American workers were receiving due to that reduction in the corporate tax rate.

So that’s why Democrats keep losing power at all levels of government.

Back in the real world, the benefits of the tax cuts are clearly having an impact on the way Americans perceive the national economy.

According to the latest CNBC All-America Economic Survey, Trump’s economic approval rating surged six points to 51%. Moreover, 54% say the economy is good or excellent, the highest recorded by CNBC in the 10 years of the survey.

The survey even shows that nearly a third of Democrats give the president support for the economy.

There is one dark cloud, however. While President Trump and Republicans should be applauded for their pro-business policies, the long-term impact of the president’s decision to impose tariffs is still unknown. Never underestimate the importance of free trade.

It’s one thing for Trump to call out countries that have long enjoyed a massive trade surplus with the United States or who are clearly engaging in unfair trade behavior. But it’s another thing for a sitting president to directly threaten American companies for their decision to move operations overseas. Recently, Harley-Davidson announced that it would be moving more production abroad in response to Trump’s decision to impose tariffs on some European countries.

The Washington Post reports, “The company’s announcement sparked a massive sell-off in the stock market amid fears that other companies might follow suit, worried about getting caught in the middle of Trump’s trade war with Europe, Canada, Mexico, China, Japan and possibly India.”

Since his days on the campaign trail, the president has used the threat of levying taxes on companies that leave the U.S. And as president-elect, Trump convinced Carrier to keep some of its operations in the U.S. rather than outsourcing jobs to Mexico.

But Trump also warned of similar consequences for other companies that considered pulling up the stakes here at home. Clearly, this was more than mere campaign rhetoric. The president continues to hold this threat over the heads of other companies who worry about a trade war.

And while the president slams Harley-Davidson for abandoning America after more than a century of motorcycle production, it’s moving only a portion of production. As the Washington Examiner’s Philip Wegmann writes, “Harley-Davidson will make motorcycles for the European market in Europe because Trump’s trade war threatens to eat into their profits. According to a report filed with the SEC, retaliatory tariffs on aluminum and steel, which just so happen to be the main materials on a motorcycle, would increase sticker price overnight by more than $2,200.”

No doubt Trump’s moves are in part an effective strategy to keep his political base energized, but we still have to worry about the long-term implications of tariffs on the national economy. For now, the president seems to be holding back from a full-scale trade war, though he’s clearly willing to use a strong economy to his advantage in setting about to clean up a decade of malaise, his way. Tariffs are just one chess piece.

Meanwhile, Democrats are hoping that painting immigration restrictions or Anthony Kennedy’s retirement as the end of “democracy” as we know it might turn Americans away from Republicans and President Trump, but for now the largely fantastic economic news is trumping all other issues. As Bill Clinton’s political adviser James Carville once famously said, “It’s the economy, stupid.”

If the economy keeps roaring at its current pace, Democrats will have a hard time convincing Americans that we need a change in leadership on Capitol Hill this November.

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