There are no winners in Trump's economy, only non-losers and big losers who are getting clearer by the day
- It seems clear now that Trump's populist base has lost the war for control of his economic agenda.
- But that doesn't mean its supposed rival, the globalists, have won either.
- The biggest non-loser in Trump's economic is big business. I say non-loser here because that's the best anyone can get during an administration where nothing gets done and structural problems go unsolved.
Looking back, it seems almost quaint that this was ever even a question.
But by now, almost halfway through Donald Trump's first term in office, it's clear who lost the war for control of his economic agenda.
It's his base. They lost. Maybe they don't know it yet, but it's over for them now.
Conversely, big business - huge business - should be feeling good right about now (not great, but definitely good). The executives, lobbyists, and foreign dignitaries with the power to whisper in Trump's ear and flatter him are having a decent run at getting Trump to take their side on big decisions. Sure, some issues have slipped through the cracks, but when big business presents a united front it seems to get what it wants.
This makes sense. In Trump's mind, these are his people, people he should be doing deals with. Everyone and everything else is just collateral.
Now who knows, maybe this strategy will work out for Republicans. It's kind of a twist on one they've been working for years - Trump is handing his base cultural victories (leaving the Iran deal, moving the US embassy in Israel to Jerusalem) while handing all the economic victories to big business and the superrich.
Then again maybe it won't work. Gas prices are going up all over the country, and that tends to sour voters on incumbents, according to research from Dartmouth University. Nothing has been done about drug pricing, another Trump promise to his base.
Either way, what Trump's preference for big business means is that our economy will see more of the same (plus a tax cut). Corporations will continue to get away with abusive behavior. The gap between rich and poor will continue to widen, putting a drag on domestic economic growth. China will continue to advance its domestic economy by flouting the rules of global trade at the expense of other nations.
That's what happens in the status quo, and that has consequences the US can't afford to ignore.
The losers
If ZTE didn't convince you that Trump's base was getting sold out, I don't know what will.
Last week Trump tweeted that he was instructing the Commerce Department to go easier on ZTE, a massive Chinese tech company that was being punished for violating US sanctions on Iran and North Korea and for stealing intellectual property.
Trump said that he was going to try to spare the 70,000 jobs that would be lost in China if the US stopped allowing the company to buy parts from its domestic manufacturers.
This, of course, sent Trump's own supporters howling. He ran on being tough on China, and now his surrogates are out there telling everyone there will be no trade war for the moment, whatever a moment is (it seems Larry Kudlow, Trump's economic adviser isn't clear on that).
So now we know there will be no massive tariffs on Chinese goods. That's a relief, but it also looks like the US won't be getting much in return. The Chinese would not even commit to narrowing its trade deficit with the US by buying an additional $200 billion in US goods, let alone making structural changes to its economy that would end its all-too-common practice of stealing US intellectual property and forcing US corporations into subservient roles in the Chinese economy.
None of Trump's minions really know what's going on here. This is probably because he doesn't really know either. We've walked away from doing things based on rules and are now doing things based on Trump's whim. The details of how we're going to avoid a trade war and appease both parties have been scant. Frankly, at this point it sounds like we're just going to go back to status quo antebellum.
Trade aside Trump's base keeps losing in all sorts of other ways. On Monday the Supreme Court sided with employers, deciding that they could block employees from banding together to sue them in class action legal disputes. Workers can instead be forced into arbitrations that historically favor employers.
This is what the Trump administration wanted, and it was Trump Supreme Court nominee Neil Gorsuch who cast the deciding vote.
The list goes on. There will be no infrastructure bill this year. A Trump nominee is gutting the Consumer Financial Protection Bureau, an agency that was supposed to stop everyday Americans from getting scammed by banks, payday lenders, and other financial institutions. The Department of Education is backing down from going after abusive for-profit colleges.
If you happen to make money by taking advantage of hard working people, as big business often does (see: Wells Fargo, Facebook, or any company that has an apology commercial on TV right now) it's a wonderful time to be alive.
The non-losers
Now, just because big business keeps winning Trump's coin flips doesn't mean you can also hand victory to the "globalists," the technocrats and thought leaders who want the world to work its problems out multilaterally. That's not what is happening here. Like I said, we've left a rules-based system behind. Trump is going to continue to negotiate his "deals" with all of the finesse of a capo in the Gambino crime family, and the global economic order will suffer for it.
This should be fine for big business up to a point. At its core big business doesn't actually care how problems are worked out as long as they're worked out in its favor and the economy remains relatively stable. That's what Trump seems to be doing.
This is why Trump's speech on abusive middle men in the pharmaceutical industry made the market laugh. JEF health-care strategist Jared Holz called the whole thing a "massive waste of time." No one on Wall Street thinks Trump is capable of true economic disruption.
What he is capable of is incompetence, and that is part of what has the market worried still. This is the point. The market hates uncertainty, and no one can be certain that Trump won't make a decision that unintentionally throws the economy into a tailspin. For example, while some companies love Trump's steel tariffs, other worry that rising prices will make things more expensive for Americans, a foreseeable but unintended consequence of slapping steel tariffs on our allies.
And then there's NAFTA. Trump seems unable to separate those negotiations with his feelings about national security at the US's southern border with Mexico.
On Sunday Treasury Secretary Steve Mnuchin implied that negotiations may stretch past July 1, when Mexico could elect a fiercely anti-Trump government. This means the agony and uncertainty could continue for some time, with Trump continuing to threaten to pull out of the deal.
But I bet he doesn't pull out. In fact, I bet nothing happens. If anything, he'll tweak NAFTA and call it a big win, just as he's doing with China right now.
Why no one can win
Maybe Trump's base will be happy with the cultural victories Trump has handed them and vote for GOP candidates in 2018 despite the fact that he's not on the top of the ticket.
And maybe Trump will manage to avoid an unintended disaster.
But that isn't going to do anything to help the US economy grow because there are very real structural issues with the US economy that need to be dealt with, issues that won't be solved with a simple tax cut. Corporations know this, and shareholders know this. Just look at how the market reacted to rosy Q2 earnings - poorly.
We still have collapsing infrastructure. We still have a big generation of young people struggling with student debt and a big generation of older people putting a drag on wage growth. We still have a massive wealth gap eroding away the middle class. Research from the Chicago Federal Reserve argues that strong overall economic growth is masking pockets of weakness among the mighty US consumer.
"As we show, various measures of household constraints have permanently increased in the wake of the Great Recession, raising the need for caution in thinking about an economy's response to aggregate shocks."
Trump has no plan to fix any of these things, and we still have China to contend with. Nothing that Trump has (or ever will) announced will stop it from abusing the global financial system as it is. It will not stop it from taking advantage of its sham of a dual currency, and it will not stop it from stealing intellectual property in a relentless effort to become technologically independent by 2025.
Big business can win every battle in the Trump administration, but no one is going to win this economic war. Here there can only ultimately be losers, and the biggest losers are Trump's base, the ones who believed that Trump would look out for anyone without money or power.