Ongoing Job Outsourcing, Jump in Trade Deficit During Trump Era Clash With Expected Trade Triumphalism During SOTU
Trump Betrayed Additional Campaign Trade Promises: Serial Job-Outsourcing Firms Get New Federal Contracts, Manufacturing Sector Slides Into Recession
President Donald Trump is likely to focus on trade in his State of the Union address. Yet, he has not delivered on the pledges that were central to his 2016 victory in key Midwest swing states: U.S. job outsourcing has continued, the manufacturing sector’s four-year employment boom that started two years before he took office flatlined in 2019 and the U.S. trade deficit rose 19% in inflation-adjusted terms (25% in nominal terms) relative to the end of the Obama administration.
Trump is likely to tout what he calls a “phase 1” China deal and the new North American Free Trade Agreement (NAFTA), which finally passed after Democrats forced him to reopen and redo the deal he signed in 2018 to remove giveaways for Big Pharma that would have locked in high drug prices and strengthen terms to counter outsourcing. But for the wide swath of American voters outside Trump’s base of whatever-he-says believers – namely the voters he must persuade to support him – decisions will be made based on the factors that affect their daily lives, not the inside-the-Beltway news about trade deals being completed. Thus, for instance, many people know they did not get the tax cuts they were promised and have seen more firms outsource jobs – whether or not they know that Trump’s tax bill incentivized more outsourcing by providing a major tax cuts for firms that move offshore.
- Tens of thousands more U.S. jobs have been government-certified as lost to outsourcing during the Trump era. This includes outsourcing by General Motors, Boeing, Honeywell, Siemens, IBM, Hewlett Packard, United Technologies (the Carrier plant candidate Trump insisted would not leave), Caterpillar, Electrolux, General Electric, Harley-Davidson, Honeywell, Kohler, Intel, Thompson Reuters, AT&T, Dun & Bradstreet, Verizon and Ministry Health. Ford and Nabisco also have outsourced under Trump but have not yet been processed on the certified list.
- The new NAFTA will not bring back hundreds of thousands of jobs: Nothing makes that clearer to voters than recent U.S. layoffs and new investment in Mexico by U.S. auto makers. GM is closing numerous U.S. plants while making popular models in Mexico. Ford is even making its new Mustang electric SUV in Mexico – the first Mustang not to be made here.
- Manufacturing job growth hit a wall in 2019 as the sector slid into recession. Manufacturing job creation nearly stopped after a job growth boom that started two years before Trump was elected. December 2019 actually saw a contraction, with 12,000 manufacturing jobs lost compared to November 2019. Late last year, an important indicator of manufacturing sector health – the Purchasing Managers Index – registered its lowest reading (for December 2019) since the June 2009 financial crisis. The PMI is up slightly in January 2020, but excluding periods in 2013 and 2016 has not been so low since 2009. The U.S. manufacturing sector was in a technical recession for the last two quarters of 2019.
- During the Trump administration, the overall U.S. goods and service trade deficit with the world rose 19% in inflation-adjusted terms (25% in nominal terms) relative to the last year of the Obama administration from $542 billion to $646 billion ($503 billion to $628 billion nominally). The U.S. trade deficit in goods increased from $792 billion in 2016 to $901 billion through 2018 in inflation adjusted terms (or $735 billion to $875 billion in nominal terms). When the annual 2019 trade data are released later this week, the 2019 manufacturing trade deficit is expected to be more than 12% above that in 2016. (The Census data is released Feb. 5, 2020.)
| Year (11-month comparisons – 2019 data released on 2/5/2020) | U.S. Manufacturing Trade Deficit with World |
| 2016 | $853.9 billion |
| 2017 | $896.2 billion |
| 2018 | $968.5 billion |
| 2019 | $962.9 billion (12.8% higher than 2016) |
- Dramatically lower U.S. oil imports and growth in U.S. oil and gas exports will likely result in the overall 2019 U.S. trade deficit declining relative to 2018 even as it will remain significantly higher than in 2016. The increase in the U.S. oil and gas trade balance will be more than $41 billion – larger than entire 2018-2019 decline in the U.S. trade deficit with China, which will be around $39 billion. The energy trade balance shift is not a sustainable way to decrease the U.S.-world trade deficit and poses serious climate change threats.
- The U.S. goods trade deficit with the rest of the world jumped 22% in real terms – from $323 billion in 2016 to $443 billion in 2019 during the 11-month period for which data is available even as the U.S. goods trade deficit with China is projected to decline from 2018 to 2019.
- Economists note that imbalances in currency values drive this trade diversion phenomena. While tariffs on Chinese goods may promote a decline in Chinese imports to the United States, growing deficits with the rest of the world increase. This is likely to continue while the U.S. dollar remains unsustainably high in value, in part because countries such as China hold massive dollar reserves, while other countries’ currencies remain undervalued.
- Contrary to his campaign promises, Trump has rewarded firms that outsourced jobs with lucrative government contracts. The list is sizable. Consider just the state Trump visited last week: In December 2018, the Siemens plant in Burlington, Iowa, closed after 148 years of operation. The plant closure eliminated 107 jobs, which was part of a nationwide loss to outsourcing of 1,800 jobs by Siemens. But during 2019, Siemens received $877,354,618 in federal contracts.
| Firms That Have Caused TAA-Certified Job Losses in Iowa | Value of Federal Contracts Received in Last 12 Months |
| Siemens | $877,354,618 |
| Verizon Communications | $754,077,723 |
| United Parcel Service (UPS) | $637,292,359 |
| Hewlett Packard | $265,824,579 |
| Cummins | $255,917,252 |
| Cargill | $184,535,591 |
| Delta Air Lines | $141,014,806 |
| John Deere | $18,517,349 |
| Bayer Pharmaceuticals | $6,578,386 |
- Many American did not get Trump’s promised tax cut. Will they connect Trump’s tax bill with continuing job outsourcing? If a firm shuts down production in the United States and moves to Mexico, its U.S. federal tax rate is cut in half. (A firm in the U.S. would pay a 21% corporate tax rate, while offshore income is taxed at a 10.5% rate.)
- It remains to be seen if what the White House is selling as a “phase 1” China trade agreement will incentivize more job outsourcing or translate into positive changes in trade flows or Chinese policies.
- The China agreement does not cover the mass subsidies or other “China 2025” policies that the White House has spotlighted as a threat to U.S. manufacturing and geopolitical interests. Indeed, policy changes China has made that are reflected in the agreement, including more access for foreign investors and protections for their intellectual property, may promote more outsourcing of U.S. investment and jobs.
- China’s action since the deal’s announcement suggest the promise of one-time increased purchases of $50 billion in energy supplies, $35 billion in services, $32 billion in agricultural goods and $80 billion in manufactured goods may prove elusive.
- Chinese purchasing agency agricultural commodity orders in early January did not reflect a shift to U.S. purchases. Chinese officials stated they won’t increase agricultural import quotas.
- Notably, the pledged $35 billion in “purchases” of services includes financial services, which translates into more financing of China 2025 acquisitions abroad and more plants in China.