Politics & Policy

Can the Trump Economy Trump Trump?

President Trump in the Oval Office after signing directives to impose tariffs, January 23, 2018. (Jonathan Ernst/Reuters)
The president’s economic policies are showing marked success, but he may not benefit politically unless he learns how to get out of his own way.

Editor’s Note: The following piece originally appeared in City Journal. It is reprinted here with permission.

President Trump’s critics find it hard to give him credit for anything, especially given his extraordinary boastfulness. Yet Trump’s economic policies seem to be working. New job numbers are robust, GDP and wages continue to rise, stocks are soaring, unemployment continues to decline, and overall growth is at its highest in 13 years. And this salutary picture is not exclusive to big business; the index of small-business optimism, as measured by the National Federation of Independent Business, has reached its highest level in the 45-year history of the survey.

Some positive trends can be traced to the Obama years, but there’s clearly been a shift in trajectory and direction of the economy. As President Obama once noted, “elections have consequences.” Under Obama, federal policies — the “stimulus,” non-regulation of tech giants, ultra-low interest rates — benefited urban core, blue-state bastions that now constitute the unshakeable base of the Democratic party. Under Trump, most working- and middle-class workers benefit from higher standard tax deductions and energy deregulation, while the affluent in high-tax states like California, New York, and Illinois are likely not to do as well.

Today, the often-disdained red states have the wind at their back, while in blue America, the economy seems to be slowing, as industries and people move to lower-cost, lower-regulation states. Seven of the top ten states in terms of population growth last year were deep red; overall, the South has become home to the better part of economic dynamism in the country, with Texas and Florida alone accounting for one-third of all U.S. growth since 2010. Some analysts suggest that the new tax law, which works against high-income earners in high-tax states, will accelerate these trends further.

The most recent employment numbers from the Bureau of Labor Statistics confirm these trends. Texas, as it has for the last few decades, is generating jobs at a higher rate than more populous California, lauded by the mainstream media as the premier anti-Trump economy. In November, the largest job increases — around 0.4 percent — occurred in three pro-Trump states: Iowa, South Carolina, and Texas. At the same time, the biggest drops in unemployment have occurred in the South, led by Alabama, where the rate fell by over 2.5 percent, followed by Tennessee, Florida, and Georgia. The BEA reports that the GDP of Texas, the linchpin of red America, over the past year is growing almost three times as fast as California’s and five times as fast as New York’s. Utah, Michigan, and Wisconsin also grew faster than California.

This marks a meaningful change in the geography of American economic vitality. Just last year, California’s estimated GDP growth was twice the national average, ranking among the highest in the nation; now it’s slowed 50 percent from last year’s level, and ranks just 35th in the country. This parallels the most recent BEA findings, where Texas, for example, is experiencing 50 percent faster growth than California. Of the top six states for income growth, all but Washington and Nevada (which Trump nearly won) went for Trump.

Today, the country’s fastest-expanding economies are in the South, not the West — on the state as well as metro level. Twenty of the 25 fastest-growing metro economies are in Trump states, both in the South and in the Rust Belt. The top three — Jacksonville, Des Moines, and Chattanooga — are all in the heart of Trump country.

How much of this can be traced to Trump? Perhaps not as much as he imagines, but it’s clear that he has encouraged sectors, notably manufacturing and energy development, that are critical to most red states. Industry is on a roll, with expansion within 16 of the 18 major sectors, according to the Institute for Supply Management. Under Obama, manufacturing enjoyed a strong recovery, but by last year that modest expansion was running out of steam. Now things are turning around. As of early December 2017, the country had added 138,000 manufacturing jobs, compared with 34,000 jobs lost during the same period the previous year.

Trump’s America First rhetoric may horrify the economic and cultural cosmopolis, but the pressure to locate plants here seems to be paying off. Fiat’s plan to move production to Warren, in the Detroit suburbs, from Mexico is expected to create 2,500 jobs there. Toyota and Mazda have announced that they will locate a major new manufacturing plant in Huntsville, creating 4,000 jobs. For Toyota, this will be its second assembly plant in Alabama.

Trump might be unpopular internationally, but foreign investors are upping their stakes in the U.S., particularly in the industrial sector, which has been booming. The U.S. remains the preferred destination for foreign capital. But these investments may mean more in Wisconsin, Alabama, Texas, and Michigan than they do in New York, California, or Massachusetts. Some of the most precipitous drops in the numbers of highly paid blue-collar jobs since 1991 have been in blue states like California, New York, and Illinois. This has been particularly notable in Los Angeles and in Cook County, Ill., long the country’s leading industrial regions. Today, manufacturing accounts for barely 5 percent of state employment in New York and 8 percent in California, weakening the focus on productive industry. But manufacturing accounts for 16 percent of jobs in Wisconsin and more than 13 percent in both Michigan and Alabama. These states see manufacturing jobs as a road to future prosperity.

No industry had more at stake in the 2016 election than energy. Many of the Silicon Valley and Wall Street supporters of green policies have been eager to capitalize on regulatory efforts to promote the demise of Big Oil. Progressive pundits saw the election as the “last chance,” as one put it, to stop “climate-change catastrophe.”

Producing fossil fuels nauseates the smart set, but in a broad swath of the country — from Pennsylvania to the Texas “oil patch” — these resources provide tens of thousands of jobs. In contrast, most blue states have little in the way of energy resources. Those that do, notably New York and California (which has the nation’s fifth-largest oil reserves), seem determined to shame and regulate the industry out of existence.

Energy’s regional economic stimulus was clear before the decline in oil prices. For much of the past decade, energy-friendly states enjoyed a gusher of jobs, many providing high-wage employment (roughly $100,000 annually, exceeding compensation in information, professional services, or manufacturing). Due largely to energy, states such as Texas, Oklahoma, and North Dakota have enjoyed their best jobs numbers and were among the first states to gain back all the positions they lost in the recession.

If Trump were a normal politician, or even simply less offensive, he could fairly represent himself as the man restoring America’s working and middle classes, who have been struggling from decades of relative decline.

The energy industry also matters in the critically important Midwest. Local natural-gas development promotes the startup of new electrical plants, critical to replacing coal and reducing emissions. Lower electricity costs have provided American manufacturers an energy-price advantage with European and Asian firms; German electricity prices, a result of green-energy policies, are almost three times the average for the United States. If Hillary Clinton had won, her embrace of anti-fossil-fuel ideology could have had a catastrophic impact on many Midwest states — Iowa, Kansas, Ohio, Illinois, Minnesota, and Indiana — that rely heavily on coal for electricity. Not surprisingly, much of the opposition to the Obama EPA’s decrees came from heartland states such as Oklahoma, Indiana, and Michigan.

With Trump’s rollback of these mandates, energy jobs, after a two-year decline, are again on the upswing, with 50,000 new positions created so far. North Dakota, Texas, and Oklahoma have all benefited. Some economists project upward of 900,000 new jobs — many high-paid and blue-collar — over the next eight years. By 2035, the American Petroleum Institute predicts that the energy sector will produce some 1.9 million new jobs, assuming that the industry is not strangled by political or ideological dynamics.

The return to a stronger grassroots economy in red America could also bridge the national wealth gap. Trump states tend to be more egalitarian, notes progressive economist James Galbraith, than Clinton states, which exhibit far more inequality in their deindustrialized economic structures. Economic expansion in Kansas City, Grand Rapids, or Houston means something different than in Silicon Valley, where gains are concentrated among the super-affluent, and where most tech workers are themselves foreign-born.

If Trump were a normal politician, or even simply less offensive, he could fairly represent himself as the man restoring America’s working and middle classes, who have been struggling from decades of relative decline. High-school graduates and minorities, languishing during Obama’s blue-state boom, see their wages now bumping up faster than those of managers and professionals. Since Trump’s election, wages for the bottom half of the wage pool have grown faster for all blue-collar workers. Black unemployment is now at a historical low, and minority incomes are on the rise, after a disappointing run in the Obama years. Opportunities are opening up even for convicted felons.

Yet a stronger economy has not boosted Trump’s approval ratings. Economic confidence is up, but more voters, according to at least one survey, credit President Obama than Trump — though more credit Trump now (40 percent) than did last summer (34 percent). It’s likely, if the expansion continues, that Trump’s popularity among voters will improve, though his chronic tendency to undermine his message with verbal controversies cannot be discounted.

Ultimately, Trump needs to make the argument that he’s delivered economic hope to a long-ignored spectrum of the country’s population. Most Americans will remain non–college graduates — in California, a recent study suggested that barely 30 percent of current ninth-graders will achieve this distinction — and will require well-paid jobs for which a high-school diploma and perhaps a certificate in a specific skill will suffice. For most Americans, including the young and minorities, economic salvation lies in tactile professions like construction, manufacturing, warehousing, and energy, not with Google and Facebook. If the case is made that job opportunities in these fields would shrink under liberal governance, electoral politics could get challenging for red-state Democrats, whose constituents work in these industries and live in communities dependent on them.

Republicans can hope that this encouraging economic picture will undermine middle-American and working-class support for the Democratic party. How it plays out politically remains to be seen. But some Democratic constituencies, notably minorities and Millennials, may have to choose between their disdain for Trump the man and Trump’s policies, which could demonstrably help them — and offer, for the first time in a generation, a glimmer of genuine hope.

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