State of the Union fact check: How true are Trump's boasts on the economy?

Once again the president trumpeted his supposed economic accomplishments – but his claims are not all they seem

John T. Bennett,Hamish McRae
Wednesday 05 February 2020 15:52 EST
Highlights of Trump's State of the Union 2020

Donald Trump used his State of the Union address to tout the health of the economy under his watch -- but he made a series of questionable claims.

Echoing his message at political rallies and official White House events over the past three years, the president declared: "I am thrilled to report to you tonight that our economy is the best it has ever been."

But government data and analysis by nonpartisan experts say that's not the case, citing slower job growth in recent years than under Barack Obama and sluggishness in manufacturing and other sectors.

"Gone ... are the broken promises, jobless recoveries, tired platitudes, and constant excuses for the depletion of American wealth, power, and prestige," Mr Trump said as congressional Democrats sat stoically, many looking more like they were attending a funeral than a presidential address. "In just three short years, we have shattered the mentality of American decline, and we have rejected the downsizing of America's destiny."

Here is a look at what Mr Trump said -- and what's actually true.

What does Trump say?
Once again, he cast himself as the greatest dealmaker in American history. He opted against mentioning the role of House Speaker Nancy Pelosi and House Democrats in negotiating with his trade team to finalise the deal with Canada and Mexico. US Trade Representative Robert Lighthizer has praised the speaker for negotiating in good faith. Mr Trump excluded that part.

"The days of our country being used, taken advantage of, and even scorned by other nations are long behind us," he said.

"Many politicians came and went, pledging to change or replace NAFTA, only to do so, and then absolutely nothing happened. But unlike so many who came before me, I keep my promises. We did our job. Six days ago, I replaced NAFTA and signed the brand-new U.S.-Mexico-Canada Agreement into law. The USMCA will create nearly 100,000 new high-paying American auto jobs, and massively boost exports for our farmers, ranchers, and factory workers."

The reality:
President Trump is greatly exaggerating the scale of the changes between the new USMCA trade deal and the old arrangements under NAFTA. What he and his trade team have done is to push through a number of tweaks to a 25-year-old agreement that will on balance bring minor benefits to all three countries but will hardly create another 100,000 jobs in the auto industry.

It will be years before the effects of the changes work through, but these look the most important.

1/ The auto industry: Cars have to have 75 per cent of their components made in the US, Canada or Mexico to qualify for zero tariffs -- up from 62.5 per cent. That is marginal but maybe will slightly help North American component manufacturers. Mexico will have to improve labour practices and pay rates -- but was heading in that direction anyway. This deal speeds up a process already happening, with the main beneficiaries Mexican workers.

2/ Agriculture: US famers get better access to Canadian market for dairy products, which had been restricted, while it return Canadian farmers get better access to the US. This is presented as a big win for the US, but actually it may equally turn out to be a win for Canada. The big issue for dairy products is not tariffs but demand. Why is milk demand falling and what might be done about it?

3/ Stronger protection for patents, trademarks, other intellectual property: This is a useful updating to take into account the way trade has changed in the digital world.

Conclusion? The new deal updates NAFTA, but will not of itself lead to radical changes in the North American economy. To claim that NATFA meant that the US was being "scorned" does not square with the modest changes being made.

What does Trump say?
Mr Trump was against an incremental trade pact with China before he was for it. For years, he directed Mr Lighthizer to get an all-encompassing agreement with Beijing. Suddenly, last year, Mr Trump changed his tune -- but that didn't stop him on Tuesday night from describing the China deal as a moon-and-stars pact.

He invoked the fear-inducing language of his 2016 campaign, saying he has lived up to a promise to "confront China's massive theft of America's jobs". He insisted "our strategy has worked", even though that's premature because he and his trade team are mulling when to start talks with Chinese officials for a follow-on agreement that would have to cover a list of tricky issues on which the two countries disagree.

"Days ago, we signed the groundbreaking new agreement with China that will defend our workers, protect our intellectual property, bring billions and billions of dollars into our treasury, and open vast new markets for products made and grown right here in the USA," he said, not offering data to support those claims.

The reality:
Short answer: we don't know whether this will really change anything in the long term, but by starting the so-called trade war with China, Trump has focused attention on the relationship between the two giants and sharpened the rivalry between them. See this as an early skirmish in what will likely become a 30-year tussle.

We don't know much about the long-term impact of the imposition of tariffs and counter-tariffs on trade between the two countries, but we do know that some sectors in both countries have been hit. These include US farmers and Chinese manufacturers. The trade war is one factor behind the decline in global trade that happened in the second half of last year.

It is however true that China had a large trade surplus with the US, restricted imports of some US goods, and did not give much protection to other countries' intellectual property -- including that of the US. The new agreement is sketchy. There are promises by China to import more US goods and to protect US intellectual property. The first is untested. We will see whether China does import much more -- probably a bit. As for intellectual property rights, China was changing already as it has been registering more and more patents as it too has developed its own technologies.

Is this deal likely to bring more jobs to the US? Probably not. China's costs have been rising and such jobs as have been going have tended to go to lower-waged rivals in South East Asia, not to the developed world. More billions to the Treasury? Hard to see how this would happen. Open vast new markets? Well, the thing that will open new markets in China is Chinese people getting richer and better able to buy foreign goods.

Conclusion: Trump's attack on the Chinese system may tilt the balance a little in the relationship between the countries, but China will still pass the US to become the world's largest economy in 10 to 15 years' time.

What does Trump say?
Mr Trump is fond of using rhetorical devices to hammer home his claims -- whether true or misleading. A favourite when touting the economy is this simple message: "Jobs. Jobs. Jobs."

"Three years ago, we launched the great American comeback. Tonight, I stand before you to share the incredible results," he said at the start of his address. "Jobs are booming, incomes are soaring, poverty is plummeting, crime is falling, confidence is surging, and our country is thriving and highly respected again.

"Since my election, we have created 7 million new jobs -- 5 million more than government experts projected during the previous administration," he said. "The unemployment rate is the lowest in over half a century. ... And very incredibly, the average unemployment rate under my administration is lower than any administration in the history of our country. True."

The reality:
Was it indeed "true"? Yes. But the jobs boom in the US did not have much to do with the administration's policies. Donald Trump inherited an economic expansion, one that became the longest ever in the summer of last year. It has been a job-rich expansion, with relatively low increases in pay, relatively low inflation, and relatively large increases in employment compared with previous cycles. We are too close to know quite why this expansion is different from previous ones, but the UK and Germany have shown similar experiences.

The expansion has, however, been driven by cheap money, and during the past year by an unprecedented fiscal boost.

Is this sustainable? The stock markets are at record highs, driven in part by excess liquidity. The fiscal deficit, thanks to Republican tax cuts, is more than 4 per cent of GDP. Personal debt is at record levels. History suggests such a boom is not sustainable.

Conclusion: This must be near the peak of the boom, and when the economy turns down the strong labour numbers will look very different.

What does Trump say?
Big promises about helping blue-collar workers get their old jobs back helped Mr Trump win states like Pennsylvania, Michigan and Wisconsin in 2016. Though government data and experts -- echoed by Democrats -- say he's fallen short of his promises, Mr Trump made a hard sell in his State of the Union that he has already solved the problem as he tries to again secure those states' Electoral College votes.

"We are restoring our nation's manufacturing might, even though predictions were, as you all know, that this could never, ever be done. After losing 60,000 factories under the previous two administrations, America has now gained 12,000 new factories under my administration, with thousands upon thousands of plants and factories being planned or being built," he said.

"Companies are not leaving; they are coming back to the USA. The fact is that everybody wants to be where the action is, and the United States of America is indeed the place where the action is."

The reality:
US manufacturing is doing well but this is a function of the boom noted above, and particularly of the availability of cheap oil and gas. The US, as a result of the boom in fracking, has become the world's largest oil producer again. This has supported a general rise in manufacturing. The US has also been helped by a relatively slow recovery in much of Europe and Japan. So there has been some re-shoring of US manufacturing, but this has not had much to do with the administration. The rise of manufacturing had already begun.

Conclusion: Trump is claiming credit for achievements that were already in place, which have little to do with his policies, and which are vulnerable to a global downturn.

Stock markets
What does Trump say?

There's one anecdote that close observers of the president have heard many times: Mr Trump's contention that an unknown man once told him his wife now calls him a "genius" because their investment portfolio has swelled since January 2017, when Mr Trump took office. He didn't tell that one on Tuesday night, relying instead on a series of talking points with no supporting data.

"Since my election, US stock markets have soared 70 percent, adding more than $12 trillion to our nation's wealth, transcending anything anyone believed was possible. This is a record. All of those millions of people with 401Ks and pensions are doing far better than they have ever done before with increases of 60, 70, 80, 90, and 100 percent, and even more.

"Jobs and investments are pouring into 9,000 previously neglected neighbourhoods thanks to Opportunity Zones. In other words, wealthy people and companies are pouring money into poor neighbourhoods or areas that haven't seen investment in many decades, creating jobs, energy, and excitement. This is the first time that these deserving communities have seen anything like this. It's all working."

The reality:
Stock markets have certainly boomed. That has helped increase the assets of pension-savers. But income inequality has been stable at a high level, and wealth inequality has soared. In the past two years there has been some evidence of "trickle down" in that wages of low-paid workers, and of minorities, have climbed. But deaths of despair -- that is deaths from alcohol, drugs (legal and illegal) and suicide -- have remained high. This has been a trend established since the early 2000s, but has picked up pace in recent years, with US life expectancy falling in 2016 and 2017. However it did rise a little in 2018. This was because deaths from drug overdoses fell in 2018, though deaths from synthetic opioids continued to climb.

Then question really is whether this Administration has had any impact on these huge social problems either way. Donald Trump refers to investment in Opportunity Zones, but many companies have long had social investment programmes, and have encouraged business start-ups irrespective of the Administration in office.

Conclusion: Yes, there is a stock market boom. That is undeniable. Yes, this is a long expansion. And yes, economic growth may have started to have some positive impact on social problems, though the evidence is at best sketchy.

But the stock market boom is fragile, and has in any case little to do with the President -- except insofar as the Republican tax cuts have given a fiscal boost to the economy at the cost of rising national debt, and probably a bigger bump when the economic cycle turns down.

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