Monday, January 27, 2020

Trump's Speech of Lies in Davos

With disgust and shock, I listened to Trump's speech in Davos last week. It sounded almost like one of his usual election campaigns. Even though it might have been written for him for the occasion. First, he dissed his predecessor, President Obama, without naming. Then he listed in a staccato his successes as 45th president. One lie after the other:

The result could hardly be more idiotic: Since Trump's election, America's economy has not gained market share worldwide but has continued to lose it - from 10.8 to 10.2 %. According to OECD estimates, US exports this year will grow more slowly than average demand in the sales markets for the fourth year in a row. Last year, US sales worldwide may even have fallen. Great revival...

Conversely, import pressure has not eased either. The share of total demand that was covered by purchases from a distance was 15.2 % in the USA in 2016 - now it is 15.6 %. Turnaround? None!

The preliminary Trump balance sheet for foreign trade as a whole is correspondingly bizarre. According to OECD forecasts, the Americans are likely to receive 600 billion dollars more on balance from abroad than they sell there. That is 170 billion - or 40 percent - more deficit than when the "dealmaker" started. This means that the US economy is once again approaching the records that were set shortly before the major financial crisis of 2007 took hold. As a reminder, the goal was a reduction, not an explosion. And this is not only statistically relevant.

Industrial Jobs are Being Cut
No revival of the industry - and of the regions where, as in the legendary Rust Belt, so many have chosen Trump out of frustration. Since 2016, the share of industrial jobs in employment in the USA has not risen again but has continued to fall. Worse still, since the economy began to weaken in 2019, not only is the ratio falling - real jobs are also being cut again.

While, all in all, a good 2.1 million more people were employed nationwide at the end of the year than a year earlier, there were almost 20,000 fewer jobs in the US auto industry. The mining industry lost 21,000 jobs within one year. Even in the oil and gas industry, which Trump protected so well, jobs were recently cut again (minus 24,000), according to the Bureau of Labor Statistics.

The preliminary balance sheet is no better with regard to Donald Trump's declared intention to revive economic dynamism in the USA through major tax reform. This came at the beginning of 2018, which reduced the government's revenue ratio by a good 2.5 percentage points - to 31.2 percent of gross domestic product.

What has so far failed to materialize is the noticeable revival of economic momentum beyond the short-term one-off effect. US companies basically did not need the tax breaks, says Nobel Prize winner Joseph Stiglitz. Anyway, they had historically a lot of money that they still didn't invest. Measured by GDP, investments today are lower than in the 1990s - not higher.

The national deficit is soaring senselessly. No wonder is apparent in the productivity statistics either. On the contrary: at around one percent per year, the increases are actually much lower than the 1.7 percent between 1992 and 2002.

In reality, many companies have hoarded the money and bought their own shares - for lack of confidence in future real sales opportunities. What made the stock boom figures more beautiful is nothing that makes the country stronger or more innovative.

This is all the more dramatic because the tax break was quite expensive. Last year, the national deficit skyrocketed to seven percent of GDP - more than twice as much as Europe's peak value was once set. And this is the best time for the economy when it would be easy to run surpluses. It is not difficult to predict that in the next recession it will quickly reach ten percent or more. Like once in Greece or Ireland around 2010.

The total debt ratio for the USA is now well above 100 percent of GDP. Even that would be half as bad if the money had been invested in things that are important for the future and would then pay off at some point - whether in rebuilding the infrastructure or fighting further climate disasters. But now it is instead in the stock portfolios of people who are already well-off.

What's crazy is that none of this will necessarily lead to Trump's popularity ratings plummeting. All the side effects may not be felt until the next crisis: when masses of people in the industry lose their jobs again; when taxes rise for everyone in order to reduce government deficits. Or when the Americans realize that all that beautiful money should have been better invested in schools, bridges and a stable climate.




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