By Jim Tankersley* – The New York Times
WASHINGTON — From tax cuts to relaxed regulations to tariffs, each of President Trump’s economic initiatives is based on a promise: to set off a wave of investment and bring back jobs that the president says the United States has lost to foreign countries.
“We have the greatest companies anywhere in the world,” Mr. Trump said at the White House recently. “They’re all coming back now. They’re coming back to the United States.”
Mr. Trump’s tax cuts unquestionably stimulated the American economy in 2018, helping to push economic growth to 2.5 percent for the year and fueling an increase in manufacturing jobs. But statistics from the government and other sources do not support Mr. Trump’s claim about his policies’ effectiveness in drawing investment and jobs from abroad.
Foreign investment in the United States grew at a slower annual pace in the first two years of Mr. Trump’s tenure than during Barack Obama’s presidency, according to Commerce Department data released in July. Growth in business investment from all sources, foreign and domestic, accelerated briefly after Mr. Trump signed a $1.5 trillion tax-cut package in late 2017 but then slowed. Investment growth turned negative this spring, providing a drag on economic output.
In Mr. Trump’s first two years in office, companies announced plans to relocate just under 145,000 factory jobs to the United States, according to data and modeling by the Reshoring Initiative, a Washington nonprofit group. That is a record high in the group’s data, which dates back to the late 1980s, but it adds up to less than one month of average job gains in the United States in its decade-long expansion. More than half of those jobs — about 82,000 — were announced in 2017, before Mr. Trump’s tax cuts took effect.
Moreover, the Reshoring Initiative data show fewer than 30,000 jobs that companies say they will relocate to the United States because of Mr. Trump’s tariffs on imported steel, aluminum, solar panels, washing machines and a variety of Chinese goods. Researchers at A.T. Kearney said last month that Mr. Trump’s trade policies, including tariffs, had pushed factory activity not to the United States but to low-cost Asian countries other than China, like Vietnam.
Manufacturers of primary metals, which include steel and aluminum, have added fewer than 15,000 jobs since Mr. Trump took office, with more than half of those gains coming before Mr. Trump imposed tariffs on foreign-made metals last year.
Now manufacturing is struggling amid a global slowdown and fallout from the trade war, which Mr. Trump has escalated by imposing additional tariffs on Chinese goods and by labeling China a “currency manipulator.”
A May report by researchers at the International Monetary Fund concluded that the investment impact of the tax bill “has been smaller than would have been predicted based on the effects of previous U.S. tax-cut episodes” and that the strongest effects on investment were likely to have shown up in the first year after the law was enacted. Morgan Stanley’s Business Conditions Index shows companies’ plans for new investment plummeted this summer.
The tax law reduced the corporate income-tax rate to 21 percent from a top rate of 35 percent, and it overhauled the way the United States taxes multinational companies. Data show those changes have encouraged multinational companies to shift hundreds of billions of dollars in profits to their American operations, essentially for accounting purposes, through a process known as repatriation.
Mr. Trump often cites repatriation figures as if they reflected direct investment in the United States. That’s wrong, said Brad Setser, a senior fellow at the Council on Foreign Relations who tracks international investment flows.
Commerce Department statistics show that the repatriated funds came mainly from low-tax countries like Ireland and Bermuda, where companies had booked profits to minimize tax liability, and not from China or other economic competitors like Japan.
That flow of money “doesn’t mean all that much,” Mr. Setser said. “You’re not in any way seeing a shift in real activity back to the United States.”
Researchers from Wall Street financial firms and the Federal Reserve have concluded that companies used repatriated funds mostly to buy back stock.
Administration officials contend that those selling shares will soon invest their proceeds from the buybacks into start-ups, business expansions or other forms of economic activity.
The officials also assert that tariffs are helping to create jobs. Commerce Secretary Wilbur Ross told a conference in Washington last month that the positive effects of Mr. Trump’s steel and aluminum tariffs “can be measured on the factory floor.”
Jim Lentz, who oversees North American operations for the Japanese automaker Toyota, has cited the company’s plans to invest $13 billion in American operations over the next several years.
“Thank you, Mr. President, for having such a strong economy for allowing us to be able to do that,” Mr. Lentz said at the White House last month.
At a summit meeting in June, Prime Minister Shinzo Abe of Japan handed Mr. Trump a chart showing Japanese investments in the United States that would yield just under 22,000 new jobs.
While Mr. Trump hailed the figures, Commerce Department data show that the rate of Japanese investment growth in the United States has slowed under Mr. Trump, compared with Mr. Obama’s second term. And companies like Toyota have warned that the president’s determination that foreign autos pose a national-security threat and may be subjected to tariffs could discourage additional investment.
On another front, administration officials point to companies like Mylan and Allergan — which had moved their corporate addresses overseas in a process known as inversion but recently said they would return to the United States — as a sign of success for the tax law. Larry Kudlow, the director of the National Economic Council, said last week that “you’re seeing American firms move back.”
When a CNBC interviewer said the Mylan and Allergan moves would not bring back manufacturing jobs, Mr. Kudlow agreed. But he said, “You’re also going to have factories moving back in from other places around the world, including China.”
Mr. Setser said he was surprised that relatively few pharmaceutical companies were moving plants and activity back to the United States from countries like Ireland or Switzerland. Pharmaceutical imports from those countries actually rose in 2018, he noted.
Harry Moser, the founder and president of the Reshoring Initiative, praised Mr. Trump’s efforts to bring jobs and investment back to the United States, but said the president’s trade fights appeared to have undercut those efforts last year.
“We are pleased with the over 50 percent surge in reshoring jobs announced in 2017 and the record number of companies announcing reshoring jobs in 2018,” said Mr. Moser, whose group advocates measures to bring back five million factory jobs.
But he said efforts to draw investment and jobs to the United States were less successful in 2018 than 2017 because of a stronger dollar, which makes American products more expensive in foreign markets, as well as “uncertainty from the tariffs, dysfunction in Washington and the increasing skilled-work-force shortage.”
Mr. Trump won office by tapping into frustration among working-class voters in traditional manufacturing states where economists say up to 2.5 million jobs were lost to Chinese competition in the century’s first decade. Senator Sherrod Brown of Ohio, an industrial state that Mr. Trump carried easily in 2016, said some workers there were growing disillusioned over the president’s failure to deliver jobs to replace those in shuttered factories like the General Motors plant in Lordstown.
“We’re sensing and seeing a betrayal of workers and promises broken over and over again,” said Mr. Brown, a Democrat.
Mr. Brown has proposed several bills that he says would reverse the outflow of jobs, including tax incentives for companies that invest in the United States and pay workers well. Mr. Moser said the aim could be furthered by investment in skills development for manufacturing workers and by the weakening of the dollar — both policies that Mr. Trump has pushed. Aug. 13, 2019
*Jim Tankersley covers economic and tax policy for The New York Times. Over more than a decade covering politics and economics in Washington, he has written extensively about the stagnation of the American middle class and the decline of economic opportunity in wide swaths of the country.