Tuesday , June 25 2019
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The risks for Trump

Summary:
I’m on record predicting that Trump will be re-elected. But the events of the last month give me a bit of pause. Here I’d like to present some of the risks facing Trump. In my view, there’s a likelihood that Trump will fail to achieve six of his primary objectives, to a greater extent than recognized by even his critics. Indeed, some of his critics say, “I hate the guy, but you’ve got to admit he’s doing what he promised.” But is he? Here are 6 key promises: 1. Raise trend RGDP growth (his biggest win, so far.) 2. Bring back manufacturing 3. Cut the trade deficit 4. Build a wall and reduce illegal immigration. 5. Build infrastructure 6. Repeal Obamacare Some would add conservative judges (a Trump win), but here I’m focusing on the so-called

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I’m on record predicting that Trump will be re-elected. But the events of the last month give me a bit of pause. Here I’d like to present some of the risks facing Trump. In my view, there’s a likelihood that Trump will fail to achieve six of his primary objectives, to a greater extent than recognized by even his critics. Indeed, some of his critics say, “I hate the guy, but you’ve got to admit he’s doing what he promised.” But is he? Here are 6 key promises:

1. Raise trend RGDP growth (his biggest win, so far.)

2. Bring back manufacturing

3. Cut the trade deficit

4. Build a wall and reduce illegal immigration.

5. Build infrastructure

6. Repeal Obamacare

Some would add conservative judges (a Trump win), but here I’m focusing on the so-called “Obama/Trump voters” in Pennsylvania, Michigan and Wisconsin, who have never even heard of the Federalist Society. We don’t live in a democracy where 250 million eligible voters get to pick the president. The president is picked by a handful of relatively uneducated white voters in those three states, who voted for Obama and who voted for Trump. I’d prefer to call them “Biden/Trump” voters (they voted for Biden as VP), as I think the Dems would be foolish not to nominate someone who is acceptable to those voters. They will pick the next president.

As far as tax cuts, for average voters the tariffs may raise taxes almost as much as the 2018 tax bill cut them.

Trump has completely failed on Obamacare, infrastructure and the wall. He’s done nothing to reduce the trade deficit. Illegal immigration is soaring higher at an amazing rate. Indeed it’s rising so fast that total immigration to the US is now rising sharply despite a modest cut in legal immigration of high skilled workers caused by Trump making it harder for those people to get visas to study in America, or keep working here after graduation. So low skilled illegal immigration is soaring while skilled immigration is down modestly. Is that an alt-right success? The silver lining for Trump is that this will boost the monthly payroll jobs numbers (above what I anticipated) and even RGDP growth.

There was a modest boomlet in manufacturing during 2017-18, although nothing special. Since January, that growth has ended and I anticipate that manufacturing will remain weak through 2020. If I’m right then Trump will lose a big issue in those Rust Belt states. Trade wars are hurting manufacturing.

The bond market seems to expect RGDP growth to slow going forward, and I agree. I predict that trend RGDP growth will be back to Obama levels (i.e. 2%) by late this year and throughout 2020.

If I’m right, then by 2020 Trump will have completely failed on all 6 of the key Rustbelt issues. In fairness, the growth we have achieved so far has led to a very strong job market, and even with slower growth going forward I expect the jobs market to remain strong, with low unemployment. So that helps Trump sell his message, and he’s especially good at convincing his supporters that he’s getting wins when he is actually losing. (Let’s see if his supporters believe he won the recent Mexican standoff.) Plus, there’s a good chance the Dems will pick someone as annoying as Hillary, not a reassuring figure like Biden. I sometimes think the entire Democratic Party should be renamed “The Committee to Re-Elect the President.”.

So for the moment I continue to predict a Trump win. But this has been a bad month, especially the May surge in illegal immigration and lower yields in the bond market signaling slower growth ahead. This anticipated slowdown is partly, but only partly, due to Trump’s foolish trade war. Monetary policy is the bigger problem.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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