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Bloomberg

Recession Making Impact in Trump Voting Hometowns

Trump's trade war has brought a lot of pain to the parts of the country that elected him in 2016

Posted on
Sep 18, 2019

Trump's trade war has had a huge impact on many sectors of the economy. Some experts now say that some of these areas may have already entered into a recession and that the people who are most affected are the ones that put Trump in office. Find out more from Bloomberg News. 

The moment usually comes during Greg Petras’s commute through the rolling hills and cornfields of southern Wisconsin. Somewhere between his home near Madison and the factory he runs on the edge of the small town of Brodhead, the news will turn to the trade wars and Donald Trump will again claim that China is bearing the cost of his tariffs. That’s when Petras loses it.

“It’s just an outright lie, and he knows it,” says Petras, president of Kuhn North America, which employs some 600 people at its farm-equipment factory in Wisconsin. For Kuhn, Trump’s trade war has produced a toxic mix of rising costs and falling revenues. “You’re slamming your fist on the steering wheel and saying ‘Why would you tell people this?’”

About 250 Kuhn employees spent the Labor Day holiday caught in a two-week furlough, and they’re facing another in early October. A shrinking order book means Kuhn is cutting costs and slashing production as Petras and his managers peer out at a U.S. economy that looks far bleaker from the swing-state heartland than it does in either the White House or on Wall Street.

The company’s circus-themed summer picnic survived but weekend shifts are gone. A plant that just four years ago was humming along to a record $400 million in sales together with a sister plant in Kansas is running at 50% capacity. The five-year-old, $11 million paint shop that coats the company’s manure spreaders and livestock feeders in a distinctive “Kuhn Red” is at 39% capacity. Plans for a new $4 million research and development building are on hold. “We’ll do it someday,” Petras says. “We just need things to be going in a better direction."

And there’s the rub. For all the debate on whether the U.S. is headed for a recession there’s plenty of evidence that corners of the economy—such as the one Petras and his employees inhabit—may already have tumbled into one.

After two boom years the picture has changed for America’s factories. Battered by rising uncertainty and the damper it has put on capital expenditures, slowing export markets, a stronger dollar, and higher input costs due to tariffs, U.S. manufacturers are making less than they did a year ago.

A widely watched index of manufacturing activity compiled by the Institute for Supply Management showed a contraction in August—the first since 2016. The Sept. 3 data release sent U.S. stock prices and bond yields tumbling as it confirmed a worrying trend that became visible over the summer, when Federal Reserve data showed factory output falling for a second consecutive quarter.

The surge in industrial jobs seen in the first two years of the Trump presidency has also gone into reverse in some parts of the country. Nationally, the U.S. has added 44,000 manufacturing jobs so far this year, according to data released on Friday. But that’s way down from the 170,000 added in the same period last year.

In 22 states—including electorally important ones like Wisconsin and Pennsylvania—the number of people working in factories actually fell in the first seven months of this year, according to figures compiled by the Economic Innovation Group, a think tank.

This isn’t what Trump promised. From his trade policy to tax cuts and deregulation, his grand economic vow was to bring factories home. By unraveling trade deals such as Nafta, taking on China, and deploying tariffs like economic cruise missiles, Trump’s “America First” agenda was supposed to boost growth in an iconic sector of the economy.

The attack on trade and globalization that Trump launched in 2016 always had a political calculus, and this helped him win a narrow victory in industrial swing states like Wisconsin. But as Trump bids for a second term there are signs he may have shot his own manufacturing recovery in the foot and undermined his own best argument—a strong economy—for reelection.

Trump bristles at the idea, portraying his trade war against China as a necessary fight against a rising economic rival. “To me, this is much more important than the economy,” Trump told reporters on Sept. 4. “Somebody had to do this.”

The president has lashed out at businesses that blame tariffs for their woes, calling them “badly run and weak,” and threatened to force American companies to abandon China. His advisers argue that the blame for any slowdown rests with a Federal Reserve that last year hiked interest rates too quickly and a strong dollar that makes U.S. exports less competitive. Trump and his allies also point to gains in manufacturing employment during his presidency. By the end of August of this year the U.S. had added 485,000 factory jobs since Trump took office, according to Bureau of Labor Statistics data. The inescapable irony is that Trump’s trade wars have helped create a scenario similar to one that helped get him elected in 2016. As a candidate, Trump benefited from the grinding and uneven recovery from the last recession. He also got a boost from a manufacturing slowdown that struck the Rust Belt just as he hit the stump promising a new era of protectionism.

The last time the U.S. logged two consecutive contractions in quarterly industrial production before this year was the first half of 2016. The country lost almost 30,000 manufacturing jobs that year as a collapse in oil prices hit the energy sector and filtered through manufacturing. Industrial regions such as western Pennsylvania saw a slowdown in shale oil projects and in sectors supplying them, such as steel. Yet none of those 2016 quarters saw as large a slump as the 3.1% fall in output recorded in the second quarter of this year.

Nationally, the U.S. has not yet seen a collapse in factory jobs. But in politics, timing and geography matter. Almost all of the gains in manufacturing employment came in the first two years of Trump’s presidency, and things have gone into reverse in swing states like Pennsylvania, which lost more than 8,000 manufacturing jobs in the first seven months of this year.

Trump is also more exposed politically to a manufacturing downturn than any Democratic rival. Nationally, manufacturing accounted for almost 12% of the jobs in counties that voted for Trump in 2016 vs. less than 7% in those that supported Hillary Clinton, says Mark Muro, a senior fellow at the Brookings Institution. In battleground states the divergence is starker, with factory jobs accounting for more than 21% of employment in Trump counties. “This is the one thing he was going to deliver. And Democrats are not vulnerable at all because if things go south they are not responsible at all,” Muro says.

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