FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
May 14, 2019
IN THIS ISSUE:
1. Great Article by Adam Michel of the Heritage Foundation
2. US Consumers, Not China, Pay Trump Tariffs on Imports
3. Webinar: YCG Investments – Thursday, May 23 at 3:00 EST
Overview
As a trained speed-reader, I read a ton of economic, financial, investment and political information from many different sources every week. I scour dozens of opinions and ideas (including some I don’t agree with) to help formulate and adjust my own opinions and positions, which I then present to you in these pages and in my weekly BLOG.
Once in a while, I run across an article that is just so well written I don’t think I can add anything to it or improve on it. In that case, I occasionally reprint such articles in their entirety, as is the case today. The article below was written by Adam Michel of the Heritage Foundation and was posted at FEE (Foundation for Economic Education). I think you’ll enjoy it.
Last week, President Trump hiked tariffs on $200 billion of Chinese goods exported to the US from 10% to 25%, and he’s considering adding another $300 billion in goods China sells us each year. Following the article below, I want to reiterate the fact that US consumers, not China, pay the tariffs vis-a-vis higher prices on Chinese imports. Everyone needs to understand that!
Data Show Poorest Americans Are
Benefiting Most From Strong Economy
by Adam Michel
Wednesday, April 8, 2019
It’s hard to escape the good economic news these days. The powers of good policy are increasing employment and wages and decreasing wage inequality.
New reports show that in the first quarter of 2019, the U.S. economy grew by 3.2%, outpacing expectations by almost a full percentage point. In the month of April, unemployment fell to a 50-year low of 3.6%. Businesses continue to add hundreds of thousands of jobs month after month.
The sustained good economic news is in no small part thanks to last year’s tax cuts, and President Donald Trump’s work to cut unnecessary regulations that made it too costly to hire new workers or grow businesses.
The Poor Benefit the Most
The old cliché is that “a rising tide lifts all boats.” That’s correct, but it misses the full scope of what a strong and growing economy does for the poorest among us. It is actually the poor -- those who have been historically disenfranchised, people with disabilities, and lower-skilled workers -- who benefit the most from rising economic tides.
Let’s look at the details.
In April, the unemployment rate for Americans with a high school degree fell to the lowest rates since before the Great Recession. Unemployment for workers with disabilities fell from eight percent to 6.3% over the last 12 months, the lowest level since the measure began in 2008.
Hispanic unemployment is the lowest it has been since 1973 (also when the measure began). Black unemployment remains close to historic lows, climbing slightly since the end of 2018.
One could hardly wish for a better trend. This economy is working for every class of American.
Increased Employment and Wages
When the economy is strong and unemployment rates are consistently low, two things happen. First, job openings pull workers off the sidelines and into the workforce. People who had been so discouraged that they stopped looking for work start getting jobs again. That’s what we’re seeing. New York Times reporter Ben Casselman noted that more than 70% of new hires last month “weren’t actively looking for work, but got jobs anyway.”
Second, employers raise wages in order to keep good talent and attract new workers to fill job openings. And that’s happening, too. Until recently, wage growth had lagged behind expectations. Not anymore.
Following the 2017 tax cuts, the growth rate for average hourly earnings began to tick up, and over the past year, average hourly earnings rose by 3.2%. That’s a raise of roughly $1,400 in a year’s take-home pay. Before 2018, wage growth hadn’t reached three percent since 2009.
The recent wage gains have been largest for those who need it most. For the last six months, wage growth for production and non-supervisory workers outpaced the average for the entire economy.
In the past year, wage growth was 6.6% for the 10th percentile of workers with the lowest incomes, according to the Annual Report of the Council of Economic Advisers. That’s double the 3.3% growth rate for workers at the top of the income distribution.
Wage Inequality Goes Down
As poorer workers continue to benefit the most from the strong economy, we will see trends in wage inequality go down. By one measure, we have already “seen some narrowing of inequality, measured as wages at the top relative to the bottom,” as reported by Obama administration economist Jason Furman.
The American people seem to be internalizing all the good news. Job satisfaction and consumer confidence are high. Workers have the highest job satisfaction since 2005, and satisfaction improved faster for lower-income households in the most recent data.
Thanks to the strong economy, Americans who aren’t happy at their current work are voluntarily leaving their jobs for better opportunities at the highest rate since 2000, when the measure started.
In addition, consumer confidence remains high after surging to an 18-year peak last fall, signaling that Americans are confident in the economy. Retirees are also more confident about their retirement security and ability to live comfortably on their savings, reporting the highest retirement confidence numbers since the early 1990s.
Bring Spending Under Control
For now, American workers are enjoying the benefits of pro-growth policies. But there is still more that Washington can do to ensure this economic expansion continues. The most pressing example is Congress’s unwillingness to cut federal spending, which has driven our debt to dangerous levels that are already dragging down our economy below where we should be.
If spending isn’t brought under control, our ballooning deficits could lead to higher taxes on current and future generations.
Right now, the powers of good policy are buoying the U.S. economy and workers. If our representatives in Washington can manage to keep taxes low and rein in federal spending, the future can be even brighter. END QUOTE
US Consumers, Not China, Pay Trump Tariffs on Chinese Imports
Last week, President Trump hiked tariffs on $200 billion of Chinese goods exported to the US from 10% to 25%, and he’s threatening to add another $325 billion in goods China sells us each year – effectively taxing everything China exports to us. This extra tariff on $325 billion will take several months to implement, if Trump decides to pursue it, and it sure looks like he will.
China retaliated, of course, by slapping tariffs on $60 billion of goods they import from us. Even worse, China said it will stop buying US agriculture and energy products and scale back orders from US companies such as Boeing and others. US wheat prices plunged to 13-year lows and soybean prices to 10-year lows. Way to go, Mr. President!
President Trump would have us believe that the Chinese exporters pay this new 25% tariff, but that’s NOT how this works. When US importers buy most goods from Chinese companies, the US importers must write a check to the US Treasury equal to the 25% tariff. The Chinese companies do NOT pay anything.
The US importers must then decide if they are going to raise their cost of goods by 25% or see their profits plummet. We all know the answer to this – they raise their prices! This means that US consumers foot the bill for President Trump’s tariffs, not China.
But it’s even worse than that. China will retaliate by placing its own tariffs on goods that US exporters sell to China, most likely by 25%. That will definitely hurt US exporters!
Trump’s National Economic Council Director, Larry Kudlow, acknowledged on Sunday that American consumers end up paying for the administration’s tariffs on Chinese imports – thus contradicting President Trump’s repeated claim that the Chinese foot the bill.
According to Kudlow, Trump believes that our tariffs on Chinese goods will hurt the Chinese economy more than their tariffs hurt the US economy. That remains to be seen, of course. Yet even if true, a trade war hurts both sides and is a very poor way to deal with adversaries.
Keep this in mind the next time you hear President Trump say that Chinese companies pay the tariffs. It’s simply NOT TRUE!
Webinar: YCG Investments – Thursday, May 23 at 3:00pm Eastern Time
Be sure to join us for our next live webinar featuring Brian Yacktman and Elliott Savage of YCG Investments who will discuss their stock selection strategy in this crazy equity environment. The live webinar will be on Thursday, May 23 at 3:00pm Eastern Time. There will be a Q&A session at the end when you can ask any questions you may have.
YCG’s Concentrated Composite Program is a “value stock” selection strategy. While YCG is long some stocks all the time, founder Brian Yacktman has a history of picking value stocks that tend to go down a lot less than the market during bear markets and downward corrections. They also have a tendency to recover losses faster than some other types of stocks.
It may interest you to know that YCG has outperformed the S&P 500 Index this year, as it did in 2018. Take a look at their FACT SHEET. As always, past performance is no guarantee of future results. You can register for next week’s webinar with YCG Investments HERE.
Even if you can’t attend the live webinar on May 23, we’ll automatically send you to a recorded version you can watch at your leisure – if you register.
Best regards,
Gary D. Halbert
SPECIAL ARTICLES
Trump’s New China Tariffs to Hit US Consumers
Larry Kudlow: US Consumers, Not China, Pay the Tariffs
Gary's Between the Lines Blog: The Decline in American Entrepreneurship
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