Analysis Of Trump’s Debate Answers On Trade And Jobs Shows Virtually No Detail
The general consensus on the first debate is that Donald Trump was taking it to Hillary Clinton on the trade issue until she baited him with a comment about the $14 million loan Trump got from his father to start his business. From then on, Trump went completely off the rails and was crushed by Clinton. But my impression was that certainly Trump came out of the gate with lots more emotion and passion but with hardly any answers. He seemed like the “security monitor” in the LifeLock ads – he could identify the problem but had no solution.
So I thought I’d go back and look at the transcript and see what specific proposals Trump provided in response to the trade issue. I’ve annotated Trump’s statements to highlight his proposals.
TRUMP: Thank you, Lester. Our jobs are fleeing the country. They’re going to many other countries. You look at what China is doing to our country in terms of making our product. They’re devaluing their currency, and there’s nobody in our government to fight them…You see that, their small car division leaving. Thousands of jobs leaving Michigan, leaving Ohio. They’re all leaving. And we can’t allow it to happen anymore…But we have to stop our jobs from being stolen from us. We have to stop our companies from leaving the United States…They’re going to Mexico. So many hundreds and hundreds of companies are doing this. We cannot let it happen. Under my plan, I’ll be reducing taxes tremendously, from 35 percent to 15 percent for companies, small and big businesses. That’s going to be a job creator like we haven’t seen since Ronald Reagan…Companies will come. They will build. They will expand. New companies will start. And I look very, very much forward to doing it. We have to renegotiate our trade deals, and we have to stop these countries from stealing our companies and our jobs.
TIDAL SOUNDINGS (TS): So Trump starts off by focusing on the jobs that have left the country. And I think everyone can agree with him that it is a serious problem. Heck, even I agree. But this is what globalization is all about and you are not going to roll it back. So the real question is what can we do about it. Trump’s proposal is simply to cut taxes on businesses. I’m thinking they tried this kind of approach in the state of Kansas and it really hasn’t worked out as Trump predicts. Most businesses move jobs overseas primarily due to labor costs and proximity to raw materials, not because of the tax rates they are paying here in the US. And moving the jobs overseas does nothing to avoid the tax, which still must be paid when the profits are repatriated. Now there is an issue with companies keeping their profits overseas and not repatriating them. And Trump does get to that later in the debate, as we will see. But please continue, Mr. Trump.
TRUMP: Our country’s in deep trouble. We don’t know what we’re doing when it comes to devaluations and all of these countries all over the world, especially China. They’re the best, the best ever at it. What they’re doing to us is a very, very sad thing. So we have to do that. We have to renegotiate our trade deals. And, Lester, they’re taking our jobs, they’re giving incentives, they’re doing things that, frankly, we don’t do. Let me give you the example of Mexico. They have a VAT tax. We’re on a different system. When we sell into Mexico, there’s a tax. When they sell in — automatic, 16 percent, approximately. When they sell into us, there’s no tax. It’s a defective agreement. It’s been defective for a long time, many years, but the politicians haven’t done anything about it.
TS: In actuality, China’s currency has been appreciating for about the last five years despite what Trump says. But even assuming other countries are manipulating and devaluing their currencies, I’m not clear what the US can do about that other than jawboning those countries to be better. And Trump certainly doesn’t offer any solutions to this. Trump then moves on to this ridiculous VAT argument that Krugman destroyed today. The VAT is essentially a sales tax and economists agree that it has zero effect on trade, despite what Trump says. But we’ll let Trump continue.
TRUMP: Well, the first thing you do is don’t let the jobs leave. The companies are leaving. I could name, I mean, there are thousands of them. They’re leaving, and they’re leaving in bigger numbers than ever. And what you do is you say, fine, you want to go to Mexico or some other country, good luck. We wish you a lot of luck. But if you think you’re going to make your air conditioners or your cars or your cookies or whatever you make and bring them into our country without a tax, you’re wrong. And once you say you’re going to have to tax them coming in, and our politicians never do this, because they have special interests and the special interests want those companies to leave, because in many cases, they own the companies. So what I’m saying is, we can stop them from leaving. We have to stop them from leaving. And that’s a big, big factor.
TS: He didn’t really finish that last thought, but I’m sure his thinking goes along the line of higher costs for imports created by tariffs will make producing items domestically more competitive. And, for certain products and certain industries, that might actually be true. But, initially, all it does is raise the cost of all the cheap products like TVs, clothing, and such that we do import. In addition, many domestic industries rely on materials that are imported so their costs will rise. And you can bet that other countries would also raise tariffs on items they import from the US which would dramatically hurt US exports. Last but not least, these tariffs would break many treaties and trade agreements we have with other countries and organizations like the World Trade Organization. Trump offers nothing to deal with these concerns.
TRUMP: So I will tell you this. We have to do a much better job at keeping our jobs. And we have to do a much better job at giving companies incentives to build new companies or to expand, because they’re not doing it. And all you have to do is look at Michigan and look at Ohio and look at all of these places where so many of their jobs and their companies are just leaving, they’re gone. I will bring back jobs. You [Hillary Clinton] can’t bring back jobs…You go to New England, you go to Ohio, Pennsylvania, you go anywhere you want, Secretary Clinton, and you will see devastation where manufacture is down 30, 40, sometimes 50 percent. NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country. And now you want to approve Trans-Pacific Partnership. You were totally in favor of it. Then you heard what I was saying, how bad it is, and you said, I can’t win that debate. But you know that if you did win, you would approve that, and that will be almost as bad as NAFTA. Nothing will ever top NAFTA.
TS: There are no policies here, just a description of the problem as Trump sees it. And certainly there are towns and cities that have been decimated by the loss of manufacturing jobs, especially over the last 15 years.
But, as Hillary Clinton pointed out, manufacturing jobs actually increased during her husband’s term. And the precipitous drop in manufacturing occurred between 2000 and 2004 before stabilizing and then dropping steeply again during the Great Recession. NAFTA came into force on January 1, 1994. The next five years actually saw a growth in US manufacturing jobs. On the other hand, China entered the World Trade Organization in 2001 which remarkably coincides with the dramatic fall in US manufacturing jobs. So Trump is wrong when he complains about NAFTA. But he is right when he says that we’ve lost a lot of manufacturing jobs to China. The question is what can we do about it, if anything. Or are those jobs gone forever and we need to focus elsewhere for increased employment. Trump provides no answers to that question.
TRUMP: And by the way, my tax cut is the biggest since Ronald Reagan. I’m very proud of it. It will create tremendous numbers of new jobs. But regulations, you are going to regulate these businesses out of existence. When I go around — Lester, I tell you this, I’ve been all over. And when I go around, despite the tax cut, the thing — the things that business as in people like the most is the fact that I’m cutting regulation. You have regulations on top of regulations, and new companies cannot form and old companies are going out of business. And you want to increase the regulations and make them even worse. I’m going to cut regulations. I’m going to cut taxes big league, and you’re going to raise taxes big league, end of story.
TS: Again, there is no detail here, just cut taxes and cut regulation and everything will be great again. I think we’ve heard this tune for the last 30 years and it led to the greatest financial disaster since the Great Depression. By this time, the focus has shifted more towards taxes but we continue.
TRUMP: Well, I’m really calling for major jobs, because the wealthy are going create tremendous jobs. They’re going to expand their companies. They’re going to do a tremendous job. I’m getting rid of the carried interest provision. And if you really look, it’s not a tax — it’s really not a great thing for the wealthy. It’s a great thing for the middle class. It’s a great thing for companies to expand. And when these people are going to put billions and billions of dollars into companies, and when they’re going to bring $2.5 trillion back from overseas, where they can’t bring the money back, because politicians like Secretary Clinton won’t allow them to bring the money back, because the taxes are so onerous, and the bureaucratic red tape, so what — is so bad. So what they’re doing is they’re leaving our country, and they’re, believe it or not, leaving because taxes are too high and because some of them have lots of money outside of our country. And instead of bringing it back and putting the money to work, because they can’t work out a deal to — and everybody agrees it should be brought back. Instead of that, they’re leaving our country to get their money, because they can’t bring their money back into our country, because of bureaucratic red tape, because they can’t get together. Because we have — we have a president that can’t sit them around a table and get them to approve something. And here’s the thing. Republicans and Democrats agree that this should be done, $2.5 trillion. I happen to think it’s double that. It’s probably $5 trillion that we can’t bring into our country, Lester. And with a little leadership, you’d get it in here very quickly, and it could be put to use on the inner cities and lots of other things, and it would be beautiful.
TS: OK, once again the wealthy are going to create tremendous jobs because apparently they aren’t wealthy enough right now to do that. Then he talks about getting rid of the carried interest provision. The carried interest provision only applies to private equity and hedge funds and it allows the managers compensation to be taxed at a lower rate than regular income. It is hard to see how changing a tax on hedge and private equity fund managers will create any new jobs. And since removing the provision will actually increase taxes on these managers, it will reduce their wealth and apparently their capacity to create those tremendous jobs. It is also hard to see how this is such a great thing for the middle class. And Democrats, including Clinton, have pushed to eliminate this provision as well. At the end, Trump addresses the issue of the $2.4 trillion in profits held overseas that have not been repatriated. Of course, the $2.5 trillion he references (and there is no source that I’ve found for his $5 trillion number) is profits, so under Trump’s own plan of a 15% tax rate , that would amount to around $375 million in revenue for the government to be put to use in the inner cities and other things. He assumes, I guess, that the rest we would be re-invested here in the US rather than just distributed back to shareholders in order to create other jobs. And, in a revised Trump tax plan, he calls for a one-time tax of 10% on repatriated profits which would bring in even less government revenue for the inner cities and other things and more corporate profits. Whatever the number, that is certainly real money and the problem of profits held overseas certainly needs to be addressed. Even President Obama has called for a one-time 14% tax on repatriated profits. But if we really want to help the inner cities, we should demand that these corporations pay the taxes that they owe rather than offering them a deal.
At this point we are off into Trump’s own taxes and Clinton starts totally dominating the debate. So, in the entire debate section where Trump was supposedly doing well, he offered one concrete proposal – cutting the corporate tax rate to 15%. He talks about currency manipulation but offers no solutions. He clearly does not understand that a VAT is a sales tax that has no effect on trade. He talks about raising tariffs but has no detail on how big those tariffs might be or how they might be legally implemented and why they wouldn’t start a trade war. HE mentions renegotiating trade deals but doesn’t say how. He points to NAFTA as the worst deal ever but it was China’s entry into the WTO that decimated US manufacturing. He is going to cut regulation but provides no details. He talks about eliminating the carried interest loophole but all that would do is cut the profits of fund managers and Clinton agrees with him on that anyway. And, finally he talks about repatriation of profits but his statement makes it sound like they would be taxed at 100% and all the money would go toward rebuilding the country. He did do a good job of mentioning Michigan, Ohio, and Pennsylvania, however. It is hard to believe that people could look at this and think this is the part of the debate he “won”.