A Tale Of Two Economic Policies

Trump posted this photo of an embrace with EU Commission President Jean-Claude Juncker on his own Twitter feed, with the comment: “Obviously the European Union, as represented by and the United States, as represented by yours truly, love each other!”


1. Chalk One Up For Trump: A Few More Days Like This And Even We May Start Believing “Tariffs Are The Greatest


Fighting back against the U.S. in a trade war really has everything to do with answering this question: Do you have the guts to turn your back on one of your biggest markets, and a major source of products and services?

Fighting back against Trump in a trade war also has to do with answering these questions: Do you see any value–even if it comes at a cost–of standing up to the President’s bullying? So that he doesn’t constantly brag about beating you to a pulp? So that in the future he doesn’t just think he can rough you up on all kinds of issues, knowing you’ll probably capitulate?

The answers so far: China yes, the EU no.

Still, we were surprised at how quickly the EU moved to appease Trump after the initial tariffs on steel and aluminum. Were they really that shook up by a carefully cultivated storyline from the White House that advisers were practically having to hold Trump back physically to stop him from slapping tariffs on European cars, (which mostly means German cars)?

At the same time, the EU has already been much more compliant on trade than China over the years, dutifully opening factories in the U.S. and doing other things that right now seem to count for nothing. (As we’ve mentioned before, Germany right now builds more cars in the U.S. than it sells. BMW for instance, builds 34,000 cars a month in Spartanburg, South Carolina, even though it only sells 26,000 cars a month in the U.S.). Also, the EU trade surplus with the U.S. is just a fraction of that of China, even though overall EU/US trade is about $1-trillion, which exceeds China/US.

And yes, you may argue if you read the joint statement issued after the meeting, the EU didn’t really agree to anything much except to talk more and–according to Trump–buy “a lot of soybeans” and “vast amounts of LNG“. (He didn’t define “a lot” or “vast amounts”). And, in fact, the only substantive thing they agreed to is that the U.S. will not launch any new tariffs as long as the two sides are talking. Interestingly, the joint statement specifies that the US and EU would work toward zero tariffs on “non-auto industrial goods”–the only mention of cars at all.

Perhaps the EU is just buying time, as China did originally when it cut a similar deal with the President, only to be slapped with tariffs later on when it became clear they didn’t really intend to do what he wanted.

But for whatever reason: political or economic or purely strategic or all three, the EU seems willing much more willing to appear subservient than China ever was, and give Trump something he can add to the list of things he boasts about incessantly at rallies. He’s already kind of started: the day before these negotiations Trump fabricated an account of how the EU called him up and begged for this meeting, complete with funny voices and hand gestures, which make them sound even more pathetic. Here’s the clip:


To be fair, Trump was polite and respectful both in person after the meeting, and in all his follow-up Tweets. Still, it’s got to be a hard pill to swallow.


With Junker in the Rose Garden


At the news conference immediately following the EU’s deal-making visit to the White House, Trump uncharacteristically did not take any questions from the media (these are usually the only type of events where he does ever answer a few questions since he never does news conferences). However, this might be understandable, considering most of the questions reporters shouted out had to do with the Michael Cohen tape and/or his relationship with Russian President Putin.

BTW, in case you haven’t heard, Putin’s not coming to the White House in the fall after all. National Security Adviser John Bolton reeled back Trump’s impetuous invite, blaming the decision to delay the visit on Special Counsel Robert Mueller, saying:

“The president believes that the next bilateral meeting with President Putin should take place after the Russia witch hunt is over, so we’ve agreed that it will be after the first of the year”.

Of course, the real reason is nobody wanted to risk Trump stepping in another deep pile of doo-doo immediately before the midterm elections.



2. Remember How Trump’s People Told You Those Massive Corporate Tax Cuts Were Going To Pay For Themselves? They’re Not. On An Almost Unimaginable Scale


The New York Times reports that taxes paid by corporations have plunged to “historically low levels” in the first 6 months of this year, due to the Trump/Republican tax cuts. Put another way, U.S. corporate tax revenues dropped more sharply than they did during the Great Recession, which was the biggest economic downturn most of us have ever seen.

Here’s a graphic from the Times:

And the economy is booming. Which at most other times would mean the government would be flooded with tax revenues. Of course that economic boom is partly due to the tax cuts, so should that effect ever cool off, the numbers would drop off even more and it could turn into a real revenue drought.

We should point out that some benefits to corporations in the new tax law were frontloaded, meaning the write-offs available immediately were greater than they will be in the future. So that could lead to a small uptick in revenues later on. But again, that can happen only if the economy continues booming.

But as we’ve repeatedly contended, how this plays out doesn’t really matter to a lot of Republicans: they see it as a win-win no matter what. Because should the Treasury’s coffers run dry, it’ll give them a chance to start slashing away at programs like Social Security and Medicare because–they’ll argue–they don’t have a choice anymore. It’ll be the only fix available for a crisis they themselves created (but that part of it won’t matter). Speaker of the House Paul Ryan has made no secret of the fact that he wants to attack social programs. However, the President has said those programs are sacrosanct and won’t be touched.

Since we started the day with a question, we’ll wrap up with one: how deeply do you trust Trump to keep that promise?