Trump claims credit for boom
• Administration is working to build a safe, strong US, president says in his first state of the union address
Donald Trump sought to connect his presidency to the nation’s prosperity in his first state of the union address, arguing that the US has arrived at a “new American moment” of wealth and opportunity.
The president largely dispensed with his trademark antagonism in a bid for bipartisanship, portraying his administration — marked in his first year by discord — as working to build a “safe, strong and proud America”. In contrast with polls that show most Americans consider him divisive, Trump promised to unify the country “as one team, one people and one American family”.
“I am extending an open hand to work with members of both parties, Democrats and Republicans, to protect our citizens of every background, colour and creed,” Trump said on Tuesday.
The White House billed the speech as part economic victory lap and part gesture across the aisle. Central to the president’s vision of a more unified country is an electorate widely benefiting from an economic boom for which Trump claims full credit.
Tax cut legislation he signed late in 2017 had already yielded bigger paycheques for millions of Americans, Trump said.
“Since we passed tax cuts, roughly 3-million workers have already gotten tax cut bonuses — many of them thousands of dollars per worker,” Trump said. “This, in fact, is our new American moment.” While some employers have credited the tax cuts for recent bonuses they have issued, some of the money may have been paid out regardless, thanks to the nation’s tight labour market and strong economy.
Democrats decried a presidency they say has ruptured the notion of shared goals of unity and equality, elevating powerful interests at the expense of working-class people who helped to power Trump to the Oval Office.
“This administration isn’t just targeting the laws that protect us — they are targeting the very idea that we are all worthy of protection,” the Massachusetts Democrat Representative Joe Kennedy said.
Senate minority leader Chuck Schumer accused Trump of further driving the nation apart. “After a long and divisive year, many Americans were yearning for the president to present a unifying vision for the country,” Schumer said.
“Unfortunately, his address tonight stoked the fires of division instead of bringing us closer together,” he said.
Trump’s speech featured pitches on subjects including infrastructure, prison reform, paid family leave and funding for job training. The decision to highlight areas for possible co- operation and to frame his remarks around stories of exceptional Americans is a tacit admission that Trump was addressing a Congress and a country sharply divided by the opening year of his administration.
A few moments drew bipartisan applause, including Trump’s recognition of Representative Steve Scalise, the Louisiana Republican gravely injured in a shooting in 2017.
Trump took a dig at the Dreamers, young undocumented immigrants brought to the US as children, whose cause Democrats have championed. He invoked the sacrifices of soldiers as “why we proudly stand for the national anthem”, an implicit reminder of his criticism of professional football players who have kneeled during the anthem in protest of police brutality against racial minorities.
He elevated his criticism of prescription drug prices to a place in the annual speech, promising he would “make fixing the injustice of high drug prices one of our top priorities”.
Trump steered clear of controversial issues surrounding the federal probe into Russian meddling in the 2016 election.
He seeded nationalist themes into the speech, announcing an executive order to keep open the prison facility at the US base in Guantanamo Bay, Cuba.
And, noting the countries that had voted to condemn the US’s recognition of Jerusalem as the capital of Israel, he asked Congress to pass a law requiring that foreign aid “only go to America’s friends”. Trump promised to crack down on what he considers to be unfair trade arrangements. “America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs and our nation’s wealth,” he said.
In striking a softer tone, the White House hopes to win back voters who appear to be abandoning the president and his party ahead of upcoming midterm elections, according to polls.
Trump also seeks to encourage legislators in the throes of an immigration policy debate and still smarting from a dispute that led to a brief government shutdown to consider Trump’s policy priorities.
A centrepiece of the president’s remarks was his pitch for an infrastructure development plan. Trump called on Congress to pass a plan to build at least $1.5-trillion worth of roads, transit and other projects, with federal dollars leveraging state, local and private money.
Trump celebrated success in the fight against Islamic State, saying, “I’m proud to report that the coalition to defeat Isis has liberated very close to 100% of the territory just recently held by these killers in Iraq and Syria and in other locations as well.”
Amid the escalating tension with North Korea, he delivered a lengthy denunciation of the regime as a brutal and “depraved” government intent on gaining a nuclear arsenal that threatened the US.
“North Korea’s reckless pursuit of nuclear missiles could very soon threaten our homeland,” he said.
I AM EXTENDING AN OPEN HAND TO WORK WITH MEMBERS OF BOTH PARTIES, DEMOCRATS AND REPUBLICANS
So I think you have a brand new United States.” That was Donald Trump’s boast in his speech to the business elite gathered at the World Economic Forum in Davos in Switzerland.
So how, if at all, is the US “new”? How might this belief of Trump’s affect his global economic agenda?
Why did Trump, who shocked Davos by stating at his inaugural that “protection will lead to great prosperity and strength”, become only the second US president to visit the annual meeting in Switzerland, after Bill Clinton in 2000?
Trump’s main aim, it was clear, was to assert that “after years of stagnation, the US is once again experiencing strong economic growth”. Moreover, it is “open for business”.
These and similar claims on employment and consumer and business confidence ran through his speech.
It is true that the US economy is strong; it is not true that this follows years of stagnation.
Between the second quarter of 2009 and the end of 2016, the US economy grew at a compound annual rate of 2.2%. Over the past four quarters, it grew by 2.5%. That is not a significant change. The big shift in growth — downwards, unfortunately — was after the financial crisis of 2008. The economy is 17% smaller than it would have been if the 1968-2007 trend had continued. Since its recovery in 2009, it has been on a far slower trend. This may change, but has not yet done so. The same is true for labour productivity, whose growth remains low.
The unemployment rate has indeed fallen under Trump, from 4.7% in December 2016 to 4.1% in December 2017, a very low rate by historical standards. But this is a continuation of the downward trend since 2010.
If anybody deserves the credit, it is the Federal Reserve, for policies too often condemned by the Republicans. Eighty-six percent of men aged 25-54 had jobs in December 2017. This is a percentage point higher than a year earlier, but 5.6 percentage points higher than in January 2010.
Unfortunately, it is still below the previous cyclical peaks of nearly 90% in 1999 and 88% in 2007. The proportion of primeaged women with jobs is also below levels in 2000.
Trump is particularly enthusiastic about stocks, claiming the market is “smashing one record after another”.
This is not wrong. In terms of Robert Shiller’s cyclically adjusted price: earnings ratio, valuations of the US market are as high as in 1929 and have been exceeded since then only by the exalted valuations of 1998, 1999 and 2000.
The rise of the market in the past year is quite remarkable, given how high it already was. But this should be a worry, not a boast. Trump may soon come to regret lauding a high stock market. It is at no president’s beck and call.
An argument for hoping that better times will soon be here is the huge tax cut for business. It is quite unlikely, however, that this will unleash a flood of investment and higher underlying economic growth. A more plausible view is that it will mainly increase stock prices, wealth inequality and the speed of the competitive race to the bottom on taxation of capital.
British experience on this is sobering. The slashing of UK corporate tax rates to 19% has done little for investment or median real wages. The hope that it proves any different in the US is likely to be disappointed.
Briefly, Trump is taking credit for the continuation of a postcrisis recovery begun under his predecessor. This is no “brand new” economy. He has been lucky. Provided the stock market does not blow up, he may stay lucky.
Yet the question is how a lucky Trump will behave. Will a man who feels he is on a winning streak be more demanding or more accommodating?
A particular concern is trade policy. On this, Trump has said: “We support free trade, but it needs to be fair and it needs to be reciprocal. Because, in the end, unfair trade undermines us all.” This is not new rhetoric.
The optimistic view is that we are going to see more of the sort of measures announced last week on solar panels and washing machines. These are foolish, but standard.
Even the renegotiation of the North American Free Trade Agreement might be a damp squib. Now that the other 11 participants in the Trans-Pacific Partnership have, to their credit, agreed to go ahead, Trump even says, “We would consider negotiating with the rest, either individually or perhaps as a group.”
The pessimistic view is that the administration is hooked on fundamentally crazy doctrines: the US trade deficit is the result not of macroeconomic imbalances but of cheating on trade policy; in addition, the way to eliminate this deficit is via new bilateral deals with all-important trade partners.
This approach would blow up the multilateral trading system. It is also incompatible with market economics. Only planned economies could attempt the bilateral balancing in which Robert Lighthizer, the US trade representative, and his master apparently believe.
An aggrieved superpower armed with such a benighted doctrine could do immense damage to the global economy and international relations.
How then should we evaluate the confident and emollient Trump we saw in Davos?
His boasts may be empty, but he has indeed been lucky in inheriting an economy enjoying a strong recovery. The economy should remain his friend, so long as he does not trust too much in the stock market.
That is good news for him. A strong US economy is good news for the world, too. A confident Trump might not be. The question is how he reacts.
Will he be more reasonable or more intransigent? His speech did not provide all the answers. Uncertainty still reigns. /©
TRUMP MAY COME TO REGRET LAUDING A HIGH STOCK MARKET. IT IS AT NO LEADER’S BECK AND CALL