Plant.ca

AP FACT CHECK: Trump’s illusory claims of gains from tariffs

Some economists have put the costs to an average US household on imports from China at $1,000 per year or more.

August 26, 2019   by ASSOCIATED PRESS

WASHINGTON — President Donald Trump is painting a false picture of a US economy unaffected by his trade war with China and other countries.

He describes a blue-sky world in which rapidly escalating tariffs have no impact on American consumers even as a raft of businesses and economists say otherwise, chastising those who caution of potential weakness in the economy as partisans.

“Our Country, economically, is doing great – the talk of the world!” he tweeted Aug. 25.

He’s glossing over the facts.

Advertisement

Some economists have put the costs to an average U.S. household from Trump’s pending tariffs on imports from China at $1,000 per year or more, not taking into account the most recent tax hike the president announced Aug. 23 of up to 30% on goods. Trump also insisted that economists don’t believe his trade disputes with China could spur recession, but in fact most analysts believe a downturn could start in the next two years.

The claims capped a week in which Trump repeatedly misrepresented his administration’s record, also citing false progress on veterans’ health care, boasting misleadingly about his judicial nominations and blaming President Barack Obama for a policy of separating migrant families that he himself started.

A look at the claims:

ECONOMY

TRUMP: “I think our tariffs are very good for us. We’re taking in tens of billions of dollars. China is paying for it.” – remarks Aug. 23 to reporters before leaving for the Group of Seven summit in France.

TRUMP: “It’s coming in by the billions. We never got 10 cents from China.” — remarks Aug. 25 with the British prime minister at G-7 summit.

TRUMP: “The tariffs have cost nothing, in my opinion. …And we’re not paying for the tariffs; China is paying for the tariffs, for the one-hundredth time.” — remarks on Aug. 18 to reporters in Morristown, NJ.

THE FACTS: Americans, in fact, are paying for the tariffs. It’s also false to say the US never collected a dime in tariffs on Chinese goods before Trump took action; they are simply higher in some cases than they were before.

As he escalates a trade war with China, Trump refuses to recognize a reality that his own chief economic adviser, Larry Kudlow, has acknowledged. Tariffs are mainly, if not entirely, paid by companies and consumers in the country that imposes them. China is not sending billions of dollars to the US treasury.

In a study in May, the Federal Reserve Bank of New York, with Princeton and Columbia universities, estimated that tariffs from Trump’s trade dispute with China were costing $831 per US household on an annual basis, before tariffs were recently escalated. Analysts also found that the burden of Trump’s tariffs falls entirely on US consumers and businesses that buy imported products.

A report this month by JPMorgan Chase estimated that tariffs would cost the average American household $1,000 per year if tariffs on another $300 billion of US imports from China proceed in September and December. Trump has since bumped up the scheduled levies even higher, likely adding to the US burden. He announced Aug. 23 that tariffs on the $300 billion in goods would increase from 10% to 15%; existing tariffs on another $250 billion in Chinese imports would go from 25% to 30% on Oct. 1 after public feedback.

Trump also has threatened anew to place tariffs on French wine imports to the US in a spat over France’s digital services tax; the European Union promised to retaliate. On Aug. 25, after saying he had “second thoughts” about the trade war with China, the White House later made clear his only regret was that he didn’t raise tariffs higher.

The Congressional Budget Office said last week that “trade policies” were weighing on US economic activity, particularly business investment.

“Businesses’ uncertainty about trade policies is expected to continue to weigh on private investment and, thus, output,” it said.

TRUMP, asked if he should take responsibility for a 600-point drop Aug. 23 in the Dow Jones industrial average spurred by his escalating trade war: “Not at all. Because if you look at from Nov. 9 – the day after the election – we’re up 50% or more. We’re up many, many points. We were at about sixteen or seventeen thousand. We’re at 25,000.” — remarks Aug. 23 to reporters.

TRUMP, on the news media: “They are trying to force a Recession, they are trying to ‘will’ America into … bad Economic times.” — tweets Aug. 25.

THE FACTS: He’s inflating the stock market performance since he was elected.

The Dow closed at 18,590 on Nov. 9, 2016, the day after Trump’s election, and it closed at 25,627 last Friday – a 38% increase.

While Trump now regularly praises a rising stock market and blasts those who try to promote “bad economic times,” he wasn’t always such a big cheerleader.

During the 2016 campaign, Trump derided the economic recovery under Obama as a mirage, dismissing stock gains and warning of recession. “The only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down,” Trump said in Sept. 2016. “We are in a big, fat, ugly bubble.”

TRUMP: “I don’t think we’re having a recession. We’re doing tremendously well … And most economists actually say that we’re not going to have a recession.” — remarks to reporters in Morristown, New Jersey.

THE FACTS: Actually, most economists – about 74% – do expect a recession in the US by the end of 2021.

The economists surveyed by the National Association for Business Economics mostly didn’t share Trump’s optimistic outlook for the economy. Thirty-four per cent of the economists said they believe a slowing economy will tip into recession in 2021. That’s compares with 25% in the February survey.

An additional 38% of those polled predicted that recession will occur next year, down slightly from 42% in February. An additional 2% of those polled expect a recession to begin this year.

The 226 economists responding work mainly for corporations and trade associations.

The economists have previously expressed concern that Trump’s tariffs and higher budget deficits could eventually slow the economy.

The Trump administration has imposed tariffs on goods from many key US trading partners, from China and Europe to Mexico and Canada. On Friday, Trump escalated his trade fight with China by raising retaliatory tariffs and ordering American companies to consider alternatives to doing business there, maintaining that the tariffs will help the administration gain more favourable terms of trade. But US trading partners have also retaliated with tariffs of their own.

TRUMP: “The Economy is doing really well. The Federal Reserve can easily make it Record Setting! The question is being asked, why are we paying much more in interest than Germany and certain other countries?” — tweet Aug. 22.

TRUMP: “Germany sells 30 year bonds offering negative yields. Germany competes with the USA. Our Federal Reserve does not allow us to do what we must do. They put us at a disadvantage against our competition.” — tweet Aug. 22.

THE FACTS: Trump misrepresents the impact of Federal Reserve policies and is mistaken about Germany’s economy, suggesting that it enjoys some kind of advantage. In fact, the negative yields are a sign of that economy’s weakness.

The German economy shrank in the previous quarter and there are expectations from investment banks that Germany soon could fall into a recession. Nor is the phenomenon isolated to Germany. Japan and much of Europe are also struggling with interest rates on government debt that are negative or close to negative.

Investors are betting that stimulus efforts by the European Central Bank will keep rates persistently low. But the negative interest rates on German bonds also reflect that government’s aversion to issuing debt, even though the borrowing would allow it to spend more on roads and bridges to spur stronger economic growth.

By having even slightly positive interest rates compared to the rest of the world, the United States is in a better position to attract global investment.

AUTOS

TRUMP: “The Legendary Henry Ford and Alfred P. Sloan, the Founders of Ford Motor Company and General Motors, are ‘rolling over’ at the weakness of current car company executives.” — tweet Aug. 22.

THE FACTS: He’s incorrect that Sloan is the founder of General Motors.

William Durant started GM in 1908, combining several companies that produced Buick, Oldsmobile, Cadillac and other vehicles. Sloan was a longtime president, CEO and chairman of GM, leading the company from the 1920s to the 1950s.

TRUMP: “My proposal to the politically correct Automobile Companies would lower the average price of a car to consumers by more than $3,000, while at the same time making the cars substantially safer. Engines would run smoother. Very little impact on the environment! Foolish executives!” — tweet Aug. 22.

THE FACTS: Trump is inflating the projected savings to consumers under his plan to freeze Obama-era fuel economy requirements at 2021 levels. He’s also minimizing the potential environmental harm.

His administration, in documents proposing to freeze the standards, puts the cost of meeting the Obama-era requirements at around $2,700 per vehicle. It claims buyers would save that much by 2025, over standards in place in 2016. But that number is disputed by environmental groups and is more than double the estimates from the Obama administration.

Trump’s tweet also is ignoring money that consumers would save at the gas pump if cars get better mileage. A study released Aug. 7 by Consumer Reports found that the owner of a 2026 vehicle will pay over $3,300 more for gasoline during the life of a vehicle if the standards are frozen at 2021 levels. The administration’s proposed freeze would hold the average fuel economy for the new-vehicle fleet at 29.1 mpg in real-world driving, while the Obama-era standards would raise it to 37.5 mpg by 2026, according to Consumer Reports.

Trump claims his proposal would cause little environmental harm, but documents from his administration say that US fuel consumption would increase by about 500,000 barrels per day, a 2% to 3% increase. Environmental groups predict even more fuel consumed, resulting in higher pollution.

Trump’s statement that cars would be substantially safer also is in dispute. His administration argues that lower-cost vehicles would allow more people to buy new ones that are safer, cutting roadway deaths by 12,700 lives through the 2029 model year. But Consumer Reports says any safety impact from changes in gas mileage standards are small and won’t vary much from zero.

And there’s little basis for Trump’s claim that engines would run more smoothly. Early versions of cars with more fuel-efficient transmissions, turbochargers and technology that stops engines at red lights were rough, but those have been refined. “The automakers have figured out how to use this technology and make the cars smoother driving, too,” said Jake Fisher, Consumer Reports director of auto testing.