Howes: Team Trump touts economic 'boom' as auto slowdown looms
Just as Detroit’s automakers are beginning to show increasing signs of a sales slowdown, the Trump administration’s top economic adviser blew through town Thursday with a message: the good times are just getting started.
"Ordinary folks are making money," Larry Kudlow, President Donald Trump’s assistant for economic policy and director of the National Economic Council, told The Detroit News in an interview. “For the first time in 20 years, the whole range of the workforce is prospering. It’s not just the top — it’s everybody. I don’t know where that’s going to lead, but it’s very heartening.”
What that means for the hometown auto industry is less clear. Rising interest rates, softening consumer demand and tariffs real and threatened are combining to cut profits, to depress share prices and to prompt some auto execs to whisper the word no one wants to hear: downturn.
Kudlow's not buying it — in part because the data, so far, says precisely the opposite. And because that'd be contrary to the message he's delivering to the industrial heartland on behalf of the Trump White House: what he calls the American growth story will "go on two, three or four years, I reckon. We haven’t had a capital goods cycle.
"We’re increasing the economy’s potential to grow," he added. "This is a business investment boom — that’s the driver. They haven’t done this with any consistency going back 20 years, to 2000. It's a very growthy economy. I believe this boom is going to go on for quite a few years."
Nationally, less than three weeks before the mid-term elections, he may be right. His rundown: Unemployment is near record lows, generally and for most demographic groups. The World Economic Forum's Global Competitiveness Report this week named the United States the world's most competitive economy for the first time in a decade. Consumer and small-business confidence is strong, and the U.S. economy boasts 7 million more job openings than the number of people unemployed.
Waving his notes, Kudlow added that real disposable income — after taxes and after inflation — are up 3 percent over the past year. And the Atlanta and St. Louis Federal Reserve banks predict the economy's growth rate could exceed 4 percent for the third quarter.
Here's hoping, especially in a town whose fortunes and defining auto industry historically are tied so closely to the vagaries of the national economy. Despite the ignominious bankruptcies of two hometown automakers, and the city itself, that's probably as much the case today as it's ever been.
A dirty little secret of the recapitalization of the auto industry, courtesy of the Obama auto task force and the U.S. Treasury, is that the auto industry and many of its top suppliers are more tightly concentrated in Michigan and a few states of the Upper Midwest than any time in decades.
As much as Trump owes his presidency to voters in Michigan, Wisconsin and Ohio, his hard-line trade tactics and their reliance on steel, aluminum and threatened auto tariffs are presenting the auto industry with unique challenges eating into their bottom lines — already roughly $1 billion at Ford Motor Co., CEO Jim Hackett has said.
“But they’re making money,” Kudlow countered. A free-trader with a belated embrace of tariffs, he knows better. His boss? Trump wields tariffs as a cudgel in trade negotiations, whether with friends (Canada, Mexico, Japan and the European Union) or foes (China, principally).
Don't expect that to change because, from the administration's perspective, tariffs work: the North American Free Trade Agreement officially has been renegotiated and renamed, and talks with Japan and the EU are well underway. Negotiations with China remain unresolved, a stalemate that could be bridged late next month when Trump and Chinese President Xi Jinping are set to meet during the G20 summit in Argentina.
If the past is prologue, the usually optimistic Kudlow is less certain: China's trade negotiators "have no response to our asks. None. Zero. The nub of this, the center of this, is the technology issues." And China's transparent efforts to shape business investment policy favor Chinese firms at the expense of foreign players who are barred from owning majority stakes of their own businesses.
Where all this could end is uncertain. Trade tension between Washington and Beijing is not helpful to Detroit, where China accounts for General Motors Co.'s top market, Ford's second largest market and a global sales growth engine for just about everyone.
So long as trade talks with China, Japan and the EU remain unresolved, Trump is unlikely to remove his threat to levy tariffs on foreign-built cars, trucks and SUVs — even those imported by GM, Ford and Fiat Chrysler Automobiles NV. The threatened tariffs remain "an open question," Kudlow said. "The goal here is zero tariffs, zero subsidies and zero non-tariff barriers.”
Does the president understand the auto industry's integrated global supply chain? Yes, Kudlow insists, courtesy of high-level briefings by him, Treasury Secretary Steven Mnuchin and others. Detroit's automakers "have any access they want. They're very important, very important."
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.