President Donald Trump answers questions from reporters in the Cabinet Room of the White House, Feb. 1.Photo: olivier douliery/Shutterstock
The paradox of Donald Trump’s Presidency after two years is that his main successes are the result of traditional Republican policies. His main trouble has come from the Trumpian exceptions on trade, immigration and polarizing temperament that motivate many of his supporters. Whether he can overcome that seeming contradiction may determine whether he can win what on present trends looks like an uphill climb to re-election.
As Mr. Trump will no doubt tell Congress in his State of the Union address Tuesday evening, his main achievement has been re-energizing what had been a long but weak and fading economic expansion. As the nearby table shows, the economy nearly dipped into recession at the end of 2015 and early 2016 before recovering to its 2% Obama-era trend.
Growth accelerated in 2017 amid deregulation and especially the end to the Obama harassment of business. The GOP Congress and Mr. Trump repealed no fewer than 16 costly Obama-era rules. Growth accelerated again to more than 3% on an annual basis in 2018 after tax reform—and may end up as the first calendar year above 3% since 2005.
Tax reform was mediocre on the individual side, with tax credits that redistributed income but did nothing for growth. But the tax-rate cuts for corporations and pass-through businesses were aimed specifically at the biggest weakness of the Obama expansion: capital investment, which surged in 2018.
This has led to productivity gains that should spur large wage increases if they continue. The labor market is as healthy as it’s been since the mid-2000s and maybe the 1990s. Average hourly earnings in January were up 3.2% year over year, the workweek was up 0.5%, and overall employment rose 1.7%. With inflation heading below 2%, economist Ed Hyman calculates that real wage gains are already nearly 4%. So much for the claim that tax reform hasn’t helped workers.
This economic progress fulfills the main promise Mr. Trump made to his working-class supporters, and keeping it going has to be his priority. With the Federal Reserve now “patient” on raising interest rates, the biggest growth obstacle is Mr. Trump’s trade agenda.
Tariffs have hurt some companies and industries willy-nilly, but the biggest harm has been the uncertainty of what comes next. Mr. Trump thinks car tariffs are “leverage” in trade talks, but they are also a reason to delay investment until supply-chain and input costs become clear. Tariffs act like Obama regulation as an economic wet blanket, as numerous CEOs attest on their earnings calls.
Mr. Trump can help guard against an economic slump in the next two years by stepping back from his 2018 burst of protectionism. First, get as good a trade deal as he can with China, declare victory, and spend the next two years monitoring how well Beijing abides by its terms. Second, withdraw the threat of car tariffs on Europe as he negotiates a trade deal with the European Union. The U.S. economy can’t grow at 3% or higher if China and Europe aren’t growing.
Then there’s the revised Nafta deal awaiting a vote in Congress. Mr. Trump will no doubt urge Democrats to support it on Tuesday, but he can’t force Speaker Nancy Pelosi to do so. What he can control is whether to hurt himself and the U.S. economy by withdrawing from the original Nafta pact, which is in force until the new one is ratified. Mr. Trump’s threat to do so merely gives Mrs. Pelosi more reason to shelve the pact since she knows any economic harm will accrue to Mr. Trump as President.
With an enhanced GOP Senate majority of 53, Mr. Trump can keep adding to another achievement—judicial nominees who are remaking the federal bench in the image of the late Justice Antonin Scalia. We wish Justice Ruth Bader Ginsburg well, but if illness forces her retirement Mr. Trump could cement what the last three GOP Presidents did not: an originalist majority on the U.S. Supreme Court for the first time in decades.
With Democrats running the House, Mr. Trump can’t expect much legislation worth doing. All the more given the sharp Democratic left turn on economics and the culture. Democrats will try to tempt him into a tax increase in return for infrastructure spending, or perhaps the Nafta deal, but this would undermine the economic growth essential to have any chance at re-election.
An immigration deal would be a signature achievement, if Democrats agreed. But to move them politically, Mr. Trump has to get off his Donald-one-note rhetoric of a “border crisis.” He has to frame the issue more broadly in a way that promises legalization for the Dreamers and others to put pressure on Democrats. He needs to offer an incentive for Hispanics to lobby Democrats to negotiate.
The Russia probe aside, a restrictionist-only immigration policy has done the most harm to Mr. Trump in the first two years. The early travel ban was a legal and political fiasco that cost him support; the family separation mess hurt Republicans in the midterms; and insisting on money for the border wall put him in a box canyon that led to his recent defeat over the government shutdown. Mr. Trump needs to make a bigger immigration offer to overcome that losing record.
President Trump faces a difficult re-election despite his economic success because he hasn’t expanded the coalition that elected him. The traditional suburban Republicans and independents who swung to his side in the final days of 2016 were willing to give him a chance rather than vote for Hillary Clinton. She won’t be on the ballot in 2020.
Democrats may give Mr. Trump a chance by running too far to the left, but voters may take even that risk unless Mr. Trump can point to prosperity and give more Americans more confidence in him personally. By now we’ve learned that last point is beyond our counsel.