President Trump avoided the harsh trade talk that underpinned his presidential campaign in his first big speech to Congress Tuesday.
But despite the softer rhetoric, he broadly kept faith with policy ideas that experts warn could lead to a trade war.
Trump used the speech to paint a dire portrait of the economy: 43 million Americans live in poverty (true), nearly one in five people in their prime working years don’t have a job (true) and the recent recovery was the weakest in 65 years (true, at least by one metric).
The problem according to Trump? Trade.
“I am not going to let America and its great companies and workers, be taken advantage of anymore,” Trump declared.
The speech was light on policy prescriptions and specific details. But it’s this “America first” rhetoric — bolstered by the threat of new tariffs and other protectionist trade policies — that has alarmed many CEOs, economists and investors.
“He’s making it very clear that everything he promised on the economic front he intends to deliver on,” said economist Ed Yardeni of Yardeni Research.
The trade deficit
Trump zeroed in on the U.S. trade deficit during his address, saying that the imbalance in goods was nearly $ 800 billion last year (In fact, when services are included, the deficit is roughly $ 500 billion).
The president promised to level the playing field — a favorite campaign theme.
To illustrate his point, Trump related a story involving the iconic American motorcycle maker Harley-Davidson(. When company executives recently visited the White House, Trump said he had asked them about their biggest business problem. They pointed to hefty taxes on motorcycles sold abroad. )
“They said that in one case another country taxed their motorcycles at 100%,” Trump explained. “They weren’t even asking for change. But I am.”
The president offered no details on what exactly he has in mind — in the past he has advocated for major tariffs on imported goods, penalties for companies that move jobs abroad and a requirement that American-made goods be used on federal government projects.
He has also recently warmed to the idea of a so-called boarder-adjustment tax, which is supposed to encourage companies to make goods in the U.S.
But the big takeaway is that Trump continues to signal that substantial action on trade is coming. Meanwhile, the vast majority of economists surveyed by CNNMoney see Trump’s protectionist trade agenda as the No. 1 threat to a thriving U.S. economy.
“The risk of any protectionist moves by the U.S. will be to trigger retaliatory measures by other nations and end up by reducing trade and growth for all,” said economist Lynn Reaser of Point Loma Nazarene University.
Trump holdup on China
While experts warn against Trump taking actions that might trigger a trade war, the president’s supporters want him to act.
In states like Michigan (which Trump won by just 10,704 votes), many of his supporters hate the North American Free Trade Agreement (NAFTA). They blame the trade deal — not automation and technology — for heavy manufacturing job losses in the state.
“People talk about you’re going to start a trade war, but we’re in trade war now,” said Bryan DeHenau, a Trump voter in Michigan who runs a small roofing business. “It’s just we’re not fighting it.”
Sharp differences between the desires of Trump voters and the recommendations of CEOs and economists are likely to persist.
Bernard Baumohl, chief economist at The Economic Outlook Group, said that “cracks in the Trump agenda are becoming more visible.” Investors, he said, should be waking up to this fact.
But Yardeni isn’t as concerned. He points out that Trump originally promised to label China a currency manipulator on Day One.
That didn’t happen. Instead, his point man on the China currency issue, Treasury Secretary Steven Mnuchin, has taken a much more cautious stance on it.