FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
March 6, 2018

1. Trump’s Bad Decision on Steel & Aluminum Tariffs

2. Tax Cuts Gaining Popularity Despite Great Media Lie

3. What Americans Are Doing With Their Tax Cut Windfall

Trump’s Bad Decision on Steel & Aluminum Tariffs

The White House announced late last week that President Trump will enact new protectionist tariffs of 25% on imported steel and 10% on aluminum. This move set off fears of a new trade war as foreign trading partners most affected by the new tariffs are expected to retaliate with new tariffs of their own that will hurt US industries.

Protectionist trade policies have rarely worked as intended and have numerous unintended consequences. Tariffs on imports, in this case steel and aluminum, almost always result in higher prices to American consumers, as will be the case this time around. Thus, this is a bad decision by President Trump.

Criticism of Trump’s latest tariff decision has been widespread on both sides of the political aisle and across the media. President Trump says his decision was predicated on the need to protect American jobs and bolster national security. It will do neither!

On the issue of protecting American jobs, here are the only numbers you need to decide where you stand on this tariff issue:

The steel-making industry in the US, which stands to benefit from the new 25% tariff, employs only about 140,000 Americans. The steel-using industries, which will be hurt by the tariff, employ apprx. 6.5 million Americans – this according to The Wall Street Journal in a report out last Thursday. That report argued:

Donald Trump made the biggest policy blunder of his presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies
abroad and undermine his tax and regulatory reforms. I couldn’t agree more!

While these new tariffs on steel and aluminum will initially benefit steel and aluminum producing companies in the US by making them temporarily more competitive, the result for all the rest of us who consume products that include steel and aluminum will be higher prices over time.

Since consumer spending accounts for almost 70% of GDP, this will be bad news for consumers and thus bad news for the economy over time. It is reported that numerous high-level advisers in Mr. Trump’s administration urged against the decision. Yet based on his comments over the weekend and on Monday, he appears to be committed to sticking to it.

Over time, these new tariffs will negatively affect all Americans, including those relatively few workers (140,000) in the steel and aluminum-making industries that will benefit in the short-run. Those in the steel and aluminum-using industries will see an immediate jump in their cost of production that will require them to increase their prices and make them less competitive.

We can only hope that President Trump, who is said to have made this decision hastily last week, will take time to consider the disappointing and negative history of tariffs and change his mind. I’m not optimistic but he did say on Monday that he might consider abandoning the new tariffs on Canada and Mexico if the ongoing negotiations to restructure the North American Free Trade Agreement (NAFTA) go the way he wants. So, we’ll see.

Tax Cuts Gaining in Popularity Despite Great Media Lie    

When Donald Trump unexpectedly won the presidency in November 2016, the mainstream media launched into an orchestrated campaign to convince the American people that Trump’s promised tax cuts would only benefit the very rich.

The widespread (but false) campaign was very successful to the point that polls late last year and earlier this year found that a majority of Americans were against the tax cuts. According to numerous polls, the American people didn’t want them.

Well, as I suggested earlier this year, that has changed. Not only are new polls showing that the tax cuts have become much more popular, but they are also showing that the tax cuts are benefitting blacks, Hispanics and women the most – not the richest Americans as the mainstream media promised. Let’s look at some numbers.

The latest poll from The New York Times found that 51% of Americans now support the tax cuts, up from only 37% in December. The latest poll from Investors’ Business Daily found a similar reversal.

The New York Times poll came out just as workers were starting to get bigger paychecks, thanks to the tax cuts and the lower federal tax withholding rate. The growing support was also the result of hundreds of companies giving bonuses, raises and better benefits to millions of workers – along with new job-creating investments in plant and equipment, as a direct result of the tax cuts.

A new survey conducted by LendEDU found that among those who have seen an increase in take-home pay, the average was over $130 a month – or nearly $1,600 for the year.

That might look like “crumbs” to multi-millionaire liberals like Nancy Pelosi, but it's real money to middle-class families.

In fact, the survey found that 55% feel more confident about their financial situation as a result of the tax cuts. And fully 70% say they are either very or somewhat happy about the tax reforms that Republicans passed. What's more, 61% say the tax cuts will strengthen the economy. So public support for the tax cuts is likely to climb even further just ahead.

All of this runs directly contrary to what Democrats told the country when they attacked and uniformly opposed the Republican tax plan – and said the cuts would go largely to the richest Americans. While over 50% of Americans initially said they didn’t want the tax cuts, now more than half (50.3%) say the tax cuts have improved their sentiment of President Trump. Just 6% say it's made them feel worse about Trump.

When you dig deeper into the numbers, more surprises turn up. The LendEDU survey found that, as a share of income, the biggest winners from the individual income tax cuts are blacks, Hispanics and women.

While the overall average increase in take-home pay was 3.5%, it was 3.64% among blacks and Hispanics, and 3.61% among women. The increase was even higher for black women at 4.26% and Hispanic women at 3.86%. The survey also found that two-thirds of blacks are either very or somewhat happy with the tax cuts, as are 68% of Hispanics. These groups vote heavily Democratic, so this could be a problem for the Dems come November.

Keep in mind when reading these results that roughly 90% of Americans who get a paycheck are seeing increases in take-home pay as a result of the tax cuts and the new lower withholding schedules. So, we're not talking about a small share of the public here.

As I have maintained for the last couple of months, the tax cuts were more popular with the public than the early polls suggested, and now they're consistently getting more popular as the public learns what's really in the GOP plan, rather than what the Democrats and the press said.

How this will play out in the November mid-term elections is, of course, far from certain. But Democrats – especially those who are trying to win in more conservative states and districts – are clearly worried voters will remember that not a single Democrat voted for the tax cuts.

What Americans Are Doing With Their Tax Cut Windfall

Earlier I noted that the average working American got a raise of more than $130 per month in January or almost $1,600 per year. The Commerce Department reported last week that the average after-tax income jumped 0.9% in January, the most in a year.

Yet the government also reported that Americans increased their spending by only 0.2% in January, down from 0.4% in December and 0.8% in November. With consumers holding back on spending, the savings rate rose in January. As I reported last month, the savings rate had fallen to a 12-year low in December.

The figures suggest Americans took a breather in January after spending enthusiastically over the holidays. But the slowdown could be temporary. Consumers are feeling much more optimistic about the economy, which should help lift spending just ahead. Consumer confidence jumped in February to the highest level since 2000, according to the Conference Board.

On another front, the number of Americans applying for unemployment benefits fell in late February to 210,000, the lowest level in 48 years, the Labor Department reported. This is a sign that employers anticipate solid growth this year and want to hold onto their staffs.

So while consumers appear to have elected to rebuild savings in January, the outlook for the economy this year remains bright. I continue to believe we could see 3% GDP growth this year. There are signs that 1Q GDP may not be as weak as previously expected. I’ll have more to say about that next week.

All the best,

Gary D. Halbert

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