The cure is tax pol­icy, not trade

Trump’s tax cut plan is the best way to get the econ­omy grow­ing again

The Washington Times Daily - - OPINION - By Don­ald Lam­bro Don­ald Lam­bro is a syn­di­cated colum­nist and con­trib­u­tor to The Wash­ing­ton Times.

Amer­ica’s lethar­gic econ­omy isn’t do­ing so good and Pres­i­dent Trump’s tax cut plan to get it grow­ing again is stalled in Congress for the fore­see­able fu­ture. Eco­nomic growth is weak. Con­sumer con­fi­dence fell in May for the sec­ond straight month. Man­u­fac­tured goods or­ders dropped in April. The Fed­eral Re­serve is hedg­ing on its plans to raise in­ter­est rates due to wor­ries about the slow­down.

Mean­time, Mr. Trump’s at­ten­tion is al­most en­tirely fo­cused on an ar­mada of gov­ern­ment in­ves­ti­ga­tors dig­ging deeply into his ad­min­is­tra­tion’s sus­pi­cious, and pos­si­bly il­le­gal, back-chan­nel re­la­tions with Vladimir Putin and other Rus­sian of­fi­cials, bankers and busi­ness­men.

The Gross Do­mes­tic Prod­uct, the U.S. Com­merce Depart­ment’s broad­est mea­sure­ment of the econ­omy’s growth rate, was barely breath­ing, reg­is­ter­ing 1.2 per­cent in the first three months of this year. And “doubts re­main about the rest of the year,” CNBC’s eco­nomic an­a­lysts said this week.

The first quar­ter rate “was still weak… and eco­nomic mea­sures over­all have been miss­ing econ­o­mists’ ex­pec­ta­tions at a steady clip,” the busi­ness net­work said.

Or­ders for longer-last­ing man­u­fac­tured goods fell 0.7 per­cent in April, a bleak sign that U.S. man­u­fac­tur­ing was barely tread­ing wa­ter. Trans­porta­tion equip­ment or­ders dropped 1.2 per­cent in April.

New home sales slid 11.4 per­cent in April, the worst de­cline in more than two years. Even more dis­turb­ing, they fell in every re­gion of the coun­try.

The Con­fer­ence Board, a busi­ness re­search group, re­ported ear­lier this week that con­sumer spend­ing “grew at the slow­est pace in seven years in the first quar­ter.”

“Af­ter the elec­tion… no­body wanted to bet against (Trump’s) pre­dic­tions that his poli­cies could re­vive eco­nomic growth to 3 or 4 per­cent,” econ­o­mist Ed Yar­deni, who heads Yar­deni Re­search, told CNBC.

But “I think it’s look­ing more and more like a stretch, if noth­ing else be­cause his poli­cies aren’t go­ing to be im­ple­mented any­time soon,” he added.

More­over, “the de­cline in in­vest­ment spend­ing “doesn’t bode well for the sec­ond quar­ter GDP,” ei­ther, says Ian Lyn­gen, head of U.S. rates strat­egy for BMO Cap­i­tal Mar­kets.

Mr. Trump’s fo­cus — if one can call it that — is all about declar­ing war on free trade, like his “bor­der tax” pro­posal on im­ports, and im­pos­ing 35 per­cent tar­iffs on our largest trad­ing part­ners.

That of course will send prices through the roof, fur­ther weak­en­ing our econ­omy and hurt­ing con­sumers.

When has rais­ing taxes on con­sumer goods ever been good for our econ­omy? Es­pe­cially one as weak as ours. Re­mem­ber the Smoot-Haw­ley tar­iffs that pro­longed the Great De­pres­sion in the 1930s?

Last week, dur­ing meet­ings with the Euro­pean Union lead­ers, the pres­i­dent went af­ter Ger­man Chan­cel­lor An­gela Merkel, sharply at­tack­ing her for the large num­ber of Ger­man cars be­ing sold in the U.S. And press­ing her to make a deal on a new trade pact.

What Mr. Trump didn’t un­der­stand is that any deal must be ne­go­ti­ated with the E.U., not with in­di­vid­ual coun­tries.

When Ms. Merkel vis­ited the White House in March, she had to ex­plain to the pres­i­dent how trade deals with the E.U. na­tions had been ne­go­ti­ated nearly a dozen times.

Ac­cord­ing to Euro­pean news re­ports, Mr. Trump re­peat­edly asked her again if they could cut a deal be­tween their two coun­tries, but she replied “You can’t do a trade deal with Ger­many, only the E.U.”

Fi­nally, Mr. Trump em­bar­rass­ingly “got the mes­sage” and replied, “Oh, we’ll do a deal with Europe then.”

But in his non­stop crit­i­cism of our U.S. trad­ing part­ners and a grow­ing trade deficit, Mr. Trump con­ve­niently leaves out a crit­i­cal fact: Al­most all the ma­jor “for­eign” car com­pa­nies make their cars here in the U.S., em­ploy­ing hun­dreds of thou­sands of U.S. work­ers.

“Ger­man car­mak­ers em­ploy about 33,000 work­ers in the United States and Ger­man au­to­mo­tive sup­pli­ers about 77,000 more,” ac­cord­ing to the Reuters news agency.

In the long run, “the United States would be shoot­ing it­self in the foot by im­pos­ing tar­iffs or other trade bar­ri­ers,” says Matthias Wiss­mann, pres­i­dent of Ger­many’s VDA au­to­mo­tive in­dus­try as­so­ci­a­tion.

Daimler’s Mercedes-Benz and BMW, for ex­am­ple, have “siz­able” fac­to­ries in Spar­tan­burg, S.C. where 65 per­cent of their cars are ex­ported to Asia and Europe.

Mr. Trump, as we’ve learned, is given to wild ex­ag­ger­a­tion when talk­ing about his abil­ity to make busi­ness deals. But, as his talks with Ms. Merkel showed, he didn’t have a min­i­mal un­der­stand­ing of the rules that gov­ern trade ne­go­ti­a­tions.

One thing he should un­der­stand is that our econ­omy is dan­ger­ously ane­mic, and the cure is tax pol­icy not trade.

When Ms. Merkel vis­ited the White House in March, she had to ex­plain to the pres­i­dent how trade deals with the E.U. na­tions had been ne­go­ti­ated nearly a dozen times.

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