President Trump’s job promise versus the reality

Deutsche Welle
6 Min Read

The new US president wants to create 25 million new jobs in a decade. While this is ambitious, it’s nothing special and other presidents have already done this. An analysis by Rolf Wenkel.Finally, you can read how US President Donald Trump is planning to boost the American economy. An article titled “Bringing Back Growth and Jobs” can be found on the White House website. Trump states that since the financial crisis of 2008, almost 300,000 industrial jobs have disappeared, government debt has doubled, and that the middle class is shrinking.

The new hero of the middle class wants to reverse this and “put the economy back on track” by increasing the growth of the economy to an annual rate of four percent and create 25 million new jobs within the next decade. Perhaps the most interesting aspect of Trump’s essay is not what it is, but what it is not.

Where is the investment program?

In the election campaign, Trump announced an investment program of $1 trillion (930 billion euros) mainly for infrastructure. This has, in turn, electrified the equity and capital markets, whose reaction at the news was positively euphoric leading to many analysts revising their growth forecasts to higher levels. The international Monetary Fund (IMF) has also slightly raised its forecasts for the US in its updated global economic outlook.

However, there is no talk whatsoever of an investment program on the White House website. Trumps’ genius plan to boost the economy is limited totax cuts and bureaucracy; not only will it reduce income and corporation tax, it will also radically simplify tax legislation to “unleash” the economy and create “millions of new jobs”.

25 million of them to be exact – a number that sounds gigantic – but not one that is so extraordinary by American standards. In Bill Clinton’s two terms as president, 21 million new jobs were created and Barack Obama achieved similar levels. This is simply because the American labor market is much more dynamic than in Europe. According to the private employment agency ADP, 216,000 jobs were created in the private sector alone in November 2016, that’s around 800 new jobs every three hours.

Globalization at work?

While politicians are eagerly anticipating an increase in the number of jobs, analysts are considering the balance between new jobs and job losses. Trump is under no illusion that globalization, free trade and the USA’s disadvantageous trade agreements are responsible and would have led to an unprecedented exodus of jobs to low-wage countries.

This argument is dangerous on two levels. Firstly, it’s not globalization but automation and “lean production” that has led to most job losses. The Federal Reserve has estimated that over the last 40 years industrial production in the US has risen by 150 percent, but the number of jobs in the industry has fallen by about a third in the same period.

Secondly, it suggests that by renegotiating trade agreements, the wheel can be turned back and many outsourced jobs can be brought back to the US, if necessary through punitive measures. Trump confirmed as much in his inaugural speech when he said “we will bring back good paying jobs to our shores.” At first glance Trumps’s strategy might be viable, for example when US car manufacturer Ford canceled plans to build a new plant in Mexico in favor of investing $700 million in an existing plant in Michigan, thus creating an estimated 700 US jobs.

Growth creates jobs

But corporate strategies and investment decisions are not developed overnight and they are the product of a long process of decision-making. Ford, for example, have revealed only what they had planned to do in their home country anyway. This makes them appear loyal to the President, despite not a single additional job being created as a result of the measures.

In addition, the idea that new jobs can be created by penalizing the products of trading partners is a dangerous philosophy. If Trump wants to create 25 million new jobs, he will need an annual growth rate of at least four percent. Punitive measures, however, will dampen growth in the medium term, and CitiBank estimates growth of around one percent per year.

Trump should also take China’s hints seriously, otherwise a trade war is inevitable. This would be the case if Trump, who labeled China a “currency manipulator” during the election campaign, inflicted a 45 percent rise in tariffs on Chinese goods in the US. According to an article in the Chinese newspaper Global Times, retaliatory measures from China could include cancelling a major order of Boeing planes in favor of Airbus, and curbing sales of iPhones and US cars in China. Trump’s promise of “good paying jobs for the American people” simply does not fully consider the consequences.

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