Has Trump fulfilled his pledge to turbocharge job growth, revive manufacturing? Many say no.
The success or failure of a U.S. president is often distilled to a baseball card-like statistic: jobs.
And no president has hitched his legacy more closely to the labor market than Donald Trump, a real estate magnate who vowed to create 25 million jobs over a decade by slashing taxes and regulations to unleash the animal spirits of America’s businesses.
As part of that vision, he promised a manufacturing renaissance that would bring back millions of U.S. factory jobs that have relocated to China and other countries with lower production costs.
“We will bring back our jobs. We will bring back our borders. We’ll bring back our wealth, and we will bring back our dreams,” Trump said at his inauguration in January 2017.
With the presidential election less than a year away and a second term at stake for Trump, economists and industry representatives say the president has a mixed record on job creation that falls well short of his promises. While the sweeping tax cuts and spending increases he spearheaded have created hundreds of thousands of jobs, his trade fights with China and other countries have forced layoffs or spawned uncertainty that has discouraged hiring.
“There’s no question the combination of the tax bill and regulatory relief made businesses more optimistic about their future,” sparking more hiring and investment, says Neil Bradley, chief policy officer for the U.S. Chamber of Commerce. “It’s also true that the tariffs have caused uncertainty that’s causing people to hold back on potential job creation.”
Bradley believes Trump’s policies overall have given a boost to job growth since cutting taxes and regulations helped most businesses, while the tariffs Trump has slapped on many imports affect a narrower range of firms.
Mark Zandi, chief economist at Moody’s Analytics, disagrees.
“It’s probably a wash,” he says. “By any objective standard, the job market has performed no better during his tenure than in the lead-up to his tenure.”
In other words, Trump inherited a solid economy from President Barack Obama, and “the job market has continued to improve,” Zandi says.
Since Trump took office in January 2017, the economy has added 6.2 million jobs in 33 months. But the Labor Department’s recent revision for the 12 months ending in March tentatively lowered that total to 5.7 million, a figure that likely will be finalized early next year. That amounts to an average of 174,000 jobs a month.
In a speech at the Economic Club of New York last month, Trump boasted that his administration “has created nearly 7 million jobs, and going up rapidly.” Trump, however, is counting jobs generated after his election in November 2016 but before he took office in late January 2017. And he isn’t figuring in the likely downward revision.
By comparison, 7.4 million jobs were added during the final 33 months of Obama’s administration, an average of 223,000 a month. But let’s put the figures in perspective. Payroll growth traditionally slows as the jobless rate falls and businesses struggle to find fewer available workers. During Trump’s term, unemployment has dropped from 4.7% to 3.6%, near a 50-year low.
How about that manufacturing revival?
Manufacturers have created about 440,000 jobs during Trump’s term but nearly all came in his first two years. So far in 2019, industry employment has been stagnant as the sluggish global economy and Trump’s trade war with China have curtailed production.
“Trump has fallen short of his goal,” says Scott Paul, president of the Alliance for American Manufacturing, which promotes policies aimed at bolstering manufacturers. He says tariffs on China could have been effective if Trump had persuaded other countries to impose them as well.
Here’s a look at Trump’s policies and their effect on jobs:
The tax overhaul slashed the corporate tax rate from 35% to 21% and allowed businesses to deduct capital spending from their income more rapidly. Also, most small-business owners can write down 20% of their income for tax purposes.
The anticipation of lower taxes and fewer regulations propelled business confidence to near-record levels, even before the $1.5 trillion tax law was passed by Congress in late 2017.
“Because (small firms) get to keep more of their money, they’re going to use it for different things,” says Brad Close, senior vice president of public policy for the National Federation of Independent Business, a small-business advocacy group. “They’re adding employees, they’re investing.“
In an NFIB survey early this year, 16% of small businesses said they used their tax savings to hire, while 26% boosted employee compensation. Small businesses with fewer than 50 workers historically make up about a quarter of all job gains, Moody’s says.
John Bradford III, owner of Park Avenue Properties, a property management firm based in Cornelius, North Carolina, launched a second company called PetScreening.com ahead of schedule in 2017 because of his anticipated tax savings the following year. The six-figure windfall, he says, allowed him to hire about 20 employees, twice as many as he would have otherwise.
“I think our growth would have been half as much,” without the tax benefit, Bradford says of PetScreening.com, an online service that lets property owners check vaccination and other records of prospective renters’ pets. Bradford also says his confidence in the economy under Trump helped spur his hiring spree.
Another way the tax cuts juiced job growth was by leaving Americans more money to spend on goods and services, prompting retailers, manufacturers and other businesses to hire more employees.
Economist Heidi Schierholz of the left-leaning Economic Policy Institute says those benefits were tempered because most of the tax savings “went to the very wealthy,” who tend to save their income gains.
The tax reform also had limited success in sparking the wave of business investment in new equipment and structures that Trump promised. Such purchases would require additional workers to make and operate everything from new computers to factory machines.
A study by the International Monetary Fund found the tax law boosted investment by 3.5 percentage points, below the average 5.3 percentage point increase projected. About 80% of the tax savings was funneled into stock buybacks, dividends and other such activities while only 20% went to capital spending or research and development.
The IMF said Trump took the unusual step of pushing for a stimulus when the economy was still expanding and businesses had less need for government assistance. Such tax perks are more effective during a downturn, the study said. And the tax cuts took effect just as Trump launched trade battles in 2018, creating uncertainty that led many companies to shelve hiring and spending.
Julian Pscheid, co-founder of digital product maker Emerge Interactive, based in Portland, Oregon, says he has held off on adding four employees to its staff of 18 because “the uncertainty that the Trump administration has brought to the overall economy has dampened our outlook.”
While Emerge doesn’t import or export, many of its clients do. “If they take a 10 to 20% hit on their bottom line, they could very well cut projects,” Pscheid says. “I just don’t know what’s going to happen the next six months.”
Instead of hiring, Pscheid says he’s outsourcing some software development to offshore programmers. “I just want to squirrel away as much as possible” in case of a downturn, he says.
Another concern: By widening the budget deficit, the tax cuts eventually could push up interest rates, hurting the economy and job growth over the longer term, and make it harder for Congress to boost federal spending during a recession.
Less red tape for businesses
The Trump administration has scrapped dozens of environmental, labor, financial and other regulations, making good on its promise to eliminate two significant rules for every one it creates, according to the Competitive Enterprise Institute, a libertarian think tank.
Some of the steps have spawned more hiring, NFIB’s Close says. For example, the administration opposed an Obama-era rule that would have raised the salary threshold at which white-collar workers would be exempt from overtime pay from $23,660 to $47,476. Instead, Trump’s Labor Department is lifting the threshold to just $35,568, making 1.3 million workers eligible for overtime instead of the 4.2 million expected. That hurts wages but helps job growth.
“Many (small firms) had to cut hours, convert full-time workers to part-time and may have had to eliminate jobs,” as they geared up for the stricter rule, Close says. Now, he says, they can preserve those jobs and hire more.
Clare Osterhage, who owns 74 Great Clips haircutting franchises in Ohio, West Virginia, Kentucky and Indiana, says she would have shelled out $140,000 more in overtime pay to executives at her Dayton, Ohio, headquarters if the Obama rule had taken effect. The Trump administration’s decision to scale back the requirement allowed her to bring on an additional executive.
“That freed up money,” she says. Along with the tax cut, “It’s part of the equation that’s allowing us to grow our business.”
The administration also has rolled back environmental regulations in a bid to revive coal mining. The industry, which had suffered a steady decline in employment before Trump, has seen payrolls stabilize but it’s tiny, with just 53,100 workers. Only 2,200 have been added since early 2017. Meanwhile, coal mines continue to shut down as electricity providers shift from coal to more environmentally-friendly natural gas-powered plants.
“It’s very difficult to connect the dots between deregulation and economic performance,” Zandi says.
The trade war
Since early last year, Trump has slapped tariffs on imports such as washing machines and steel and aluminum, as well as most shipments from China, as part of a campaign to aid U.S. manufacturing and bring back industrial jobs to the U.S.
“Tariffs are a great negotiating tool, a great revenue producer and, most importantly, a powerful way to get companies to come to the USA and to get companies that have left us for other lands to COME BACK HOME,” Trump tweeted in July.
The Reshoring Initiative, a non-profit that tracks announcements of production moved to the U.S. from overseas, says American companies announced plans to bring back 153,000 jobs from overseas in 2017 and 2018, up from 55,000 in 2016. Tariffs were mentioned as a factor for 34,000 of the jobs, while lower taxes and fewer regulations likely helped trigger many others, says Harry Moser, the group’s founder.
Yet consulting firm A.T. Kearney says such anecdotal data isn’t borne out by its own reshoring index. Last year, it showed, 13.1 cents of offshore production in 10 key countries was bound for the U.S. for every dollar of U.S. manufacturing output, the highest ratio since the index was launched in 2014.
In other words, “The production being moved from the U.S. to Asia is much higher” than the volume “moved from Asia to the U.S.,” says Johan Gott, co-author of the study.
Meanwhile, the share of global foreign investment received by the U.S. – typically through new or expanded factories – dipped last year for the first time since 2008 as the trade war made the country less hospitable to multinational companies, says Nancy McLernon, CEO of the Organization for International Investment.
Trump hopes a trade deal with China ultimately prompts manufacturers to build factories here, boosting job growth. But so far the tariffs mostly have raised import costs for U.S. retailers and manufacturers while Chinese counter-tariffs have crimped American exports, damping employment.
Kent International, of Parsippany, New Jersey, imports most of its bikes from China but makes about 260,000 a year at its factory in Manning, South Carolina. Most of its parts, however, are also made in China and those have been hit by a 25% tariff, raising the company’s costs by 16%. The pricier bikes also have reduced sales by 5% to 7%, says company CEO Arnold Kamler.
In July, Kent laid off 40 workers, including 35 at the Manning factory.
“We have to survive,” he says, adding that Kent recently hired back 10 of the employees. Noting the firm has effectively been penalized for making bikes in the U.S., Kamler adds, “It’s really not fair.”
Among the few winners of Trump’s tariffs were steel and aluminum makers, which benefited after Trump taxed imports of those metals last year. Companies such as U.S. Steel and Century Aluminum said they were restarting mills or ramping up output as duties increased demand for their products, which were now competitively priced.
Since late last year, however, the industry has been hammered by a worldwide steel glut and sluggish global demand, leading to sharp declines in steel prices, along with layoffs. Ironically, the tariffs made things worse by prompting U.S. steelmakers to expand capacity. And many manufacturers that use steel in their products turned to cheaper materials like plastics or moved production overseas, says Charles Bradford, head of Bradford Research.
“The tariffs didn’t help,” he says.
Employment in steel production has risen modestly since early 2018, from 83,500 to 84,100 while payrolls in aluminum making have dipped by about 2,000 to 56,200.
Meanwhile, the effect of the duties on companies that use metals can be long-lasting. Last year, Mid-Continent Nail, the nation‘s largest nail maker, was hit by a 25% tariff on the steel it imports from Mexico. Forced to raise prices for its construction and industrial customers, sales fell nearly 70%, says operations manager Chris Pratt.
Mid-Continent, based in Poplar Bluff, Missouri, laid off 60 of its 500 workers and lost another 140 through attrition. In April, it received an exemption from the Mexican tariffs before they were lifted broadly the following month. But with customers turning to cheaper foreign imports, the company has recouped only half the business it lost, prompting it to add back half the 200 employees it shed. Many customers turned to cheaper foreign nail suppliers, which made big investments to increase capacity.
“They’re not willing to easily give that business up,” Pratt says. And the tariffs “created uneasiness” about Mid-Continent’s reliability.
“It’s frustrating. You’re living in the belief that you get an exemption and everything’s going to be fine.”
So what’s the bottom line?
Zandi estimates the Trump-led tax cuts and spending increases have added 485,000 jobs while his trade war has cost 320,000. That appears to be a modest 165,000 net gain for the economy. But Zandi says Trump’s tough stance on immigration likely has reduced employment by 220,000 by keeping out immigrants who would have spent money and helped grow the labor force.
While such differences may not move the needle in the 2020 election, Trump faces risks in manufacturing strongholds like Wisconsin, Michigan and Pennsylvania that helped deliver victory for him in 2016 and have been hurt by the trade war. Since April, the unemployment rate has climbed from 2.8% to 3.3% in Wisconsin and from 3.8% to 4.2% in Pennsylvania.
“A softer job market will become a political headwind to the president’s re-election bid if it continues into next summer,” Zandi says.