New economic disruptions aren't Trump's fault -- but are out of his control

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President Donald Trump campaigned for office saying he alone co...

Posted: Sep 16, 2019 7:02 PM

President Donald Trump campaigned for office saying he alone could fix what ails the US economy. So far he's created a global trade war that's hurting China's economy and pressuring his own Rust Belt supporters.

But now he's facing two crises he didn't cause and can't control: an oil crisis in Saudi connected to a civil war in Yemen, and a union strike that's shut down GM.

Striking auto workers in the middle of the country and strikes on oil facilities in Saudi Arabia don't have anything to do with each other, although both threaten specific elements of the US economy for which Trump wants credit.

And, in an object lesson on presidential powerlessness, there may be little he can do about either.

"He is learning the limits of what a US president can do," said Douglas Holtz-Eakin, who was top economist at the Council of Economic Advisers under President George W. Bush. "You can set the environment for things to happen, but you don't make things happen."

Trump's presidency has been marked tempests own making. He started a trade war to create pressure for new trade deals. He abandoned an international nuclear deal with Iran. He's skirted Congress to pay for a wall many people don't think is necessary.

Intentionally divisive policies like these have held his approval rating down, so a credible bid for reelection relies on an economy that continues to expand. Even if people don't like him, they probably need to feel like things are generally going okay.

Recent polls suggest that despite continued low unemployment, economic anxiety is rising in the country, so it's been essential for Trump to be able to dial up his standoff with China to look tough, but also delay tariffs when necessary to spark optimism in an ultimate trade deal.

But a regional war in the Middle East is outside his control even though it could have serious consequences inside the US.

Trump's emphasis on oil

Trump talks all the time about the fact that on his watch the US has become the world's top producer of crude oil.

He did it on Twitter Monday morning when he said the US doesn't even need Saudi oil and suggested you should thank him for it.

"Because we have done so well with Energy over the last few years (thank you, Mr. President!), we are a net Energy Exporter, & now the Number One Energy Producer in the World. We don't need Middle Eastern Oil & Gas, & in fact have very few tankers there, but will help our Allies!"

But he's also quite nervous about the situation and the resulting spike in oil prices.

"PLENTY OF OIL!" he tweeted Sunday, after saying he had already authorized his government to tap into the Strategic Petroleum Reserve, a bank of oil the country keeps in case of emergency.

He further sought to tamp down concern on oil prices in remarks Monday in the Oval Office.

"They haven't risen that much," he said, later adding, "It went up $5 and that is not a problem."

The situation in Saudi Arabia actually represents the largest oil disruption in history and oil futures actually spiked 14.7%, the most in a decade, settling somewhat after Trump made his comments about tapping the Strategic Petroleum Reserve.

Energy Secretary Rick Perry clarified that the administration was not yet moving to tap into that reserve. While that move would work to keep oil prices down, Trump's other allusion, was that the US was "locked and loaded" after attacks on Saudi Arabia and that the country could strike against Iran for masterminding attacks carried out by Yemenis. A new US-led conflict in the Middle East might actually drive oil prices up.

A global market

Trump's decision to withdraw from the Iran nuclear deal and to threaten countries buying oil from that country hasn't helped either. Even before the attacks on Saudi facilities, oil prices were on their way up.

It's all a reminder to a nationalist like Trump that regardless of whether the US is the top oil producer, the oil market stretches across the world.

"We have a very very unified global market in petroleum products and crude oil and if you restrict the supply anywhere, the remaining oil, whether it's shale oil from the United States or Norwegian oil or whoever it may be, it's more valuable," said Holtz-Eakin.

Trump has not only bragged about US oil production but said that efforts by Democrats to move the country away from fossil fuel consumption are an actual assault on Americans and how they live.

"Every leading Democrat running for President pledges to ban the energy that drives our economy and wage and under -- If you look at what's going on, your way of life is under assault by these people," he said Sept. 9 during rally in North Carolina.

Promises to auto workers

He needs oil prices to be steady just like he wants to argue there is an increase in manufacturing jobs in the Rust Belt. That's what he promised his nationalist policies would accomplish.

In fact, after those comments about oil consumption being the American way in North Carolina, Trump argued that everything would have been much worse under the Trans-Pacific Partnership, a massive trade deal negotiated with much of Asia except China.

"You could have kissed many of your industries goodbye," Trump said. "TPP would have gutted the American auto industry."

Except that it's also clear today with tens of thousands of auto workers striking in states like Michigan and Ohio that Trump must win, that his policies, which he pitched specifically to rescue manufacturing jobs haven't solved the auto industry's problems. Nearly a million Americans work in automobile and automobile parts manufacturing, according to Bureau of Labor Statistics.

But the auto industry continues to grapple with an evolving market. GM recently closed a plant in Lordstown, Ohio, that made a poor-selling sedan. It's also been hurt by Trump's trade war and newly imposed Chinese tariffs on US automobiles.

Trump, for his complaints about TPP, has not yet achieved his own trade deal with China. His administration negotiated an update to NAFTA, the US-Canada-Mexico Agreement, which would require more auto parts be manufactured in the US. But Democrats who control the House of Representatives want some changes to address concerns about workers, the environment and drug prices.

Meanwhile, while the overall unemployment rate remains extremely low, the auto workers will tell you that not all jobs are created equal.

"It's not just that recent events, like the spike in oil prices, show that Trump, or any president, can't control global markets," said Jared Bernstein, an economist who worked for Vice President Joe Biden during the Obama administration. "It's also that his policies, from the regressive tax cuts to the damaging trade wars, are clearly hurting, not helping, the working-class folks who responded to his pitch."

Evolving markets

In fact, Trump's pitch to workers in the Rust Belt could be complicated by his effort to turn the 2020 campaign into a referendum on Democratic proposals for the government to do a lot more to help workers, including strengthening unions. Trump, meanwhile, has warned of socialism.

And while Democrats are in their own disagreement over whether a Medicare for All plan would force union workers off generous health plans they negotiated in lieu of higher pay, Trump has spent so much time targeting GM that he cannot credibly step in here.

Asked if he stood with the auto workers, Trump said he was sad to see the strike and that he hoped it was quick, but his focus was more on GM's business than on worker demands.

"I would like to see it work out but I don't want General Motors building plants in China and Mexico," he said, glossing over the international supply chain that already characterizes the auto industry. "This was before my watch. And I don't think they will be doing that. I don't think. I had meetings with the head of GM and I don't want them leaving our country. I don't want them building them in China or other countries."

Top producer of oil

Certainly the country's new position as an oil exporter makes a price spike much different from the 1970s, when an oil embargo by OPEC countries brought the US economy to a standstill.

So you roll the clock back 20 or 30 years, when oil prices went up, the US was almost exclusively a consumer of oil and those prices were tantamount to a tax on American consumers and we worried about the fallout all the time," said Holtz-Eakin. "It's way different to own the oil. When the price goes up, you make some money at the same time."

Trump's focus on oil comes along with his dismissive attitude about the climate crisis, the issue that has Democrats and other looking to wean the country off oil. In August, Trump referred to renewable energy as "dreams" and not something he'd pursue at the expense of wealth in oil.

"I'm not going to lose that wealth," he said during a press conference, standing next to the French President Emmanuel Macron. "I'm not going lose it on dreams, on windmills," he said.

It's easier to focus on oil as the backbone of the US economy when oil is cheap and when US auto companies hum.

None of these problems are new for the US. Presidents have been trying and failing to solve them for decades.

"Here's the part I find ironic or humorous, which is, there's a lot about the way Trump talks about things which is, let's bring back the '50s and the '60s; that was just such a great time," said Holtz-Eakin. "Well, you got striking auto workers and geopolitical risk in the oil markets to feel like we're back there."

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