GOP frets Trump tariffs will hit midterm prospects

GOP frets Trump tariffs will hit midterm prospects
© Getty Images

Republicans have bet their congressional majorities on the booming economy ahead of the midterm elections, but face growing political threats from President TrumpDonald John TrumpSunday shows preview: Trump sells U.N. reorganizing and Kavanaugh allegations dominate Ex-Trump staffer out at CNN amid “false and defamatory accusations” Democrats opposed to Pelosi lack challenger to topple her MORE's trade policy.

U.S unemployment has sunk to record lows and economic growth has accelerated during Trump's first term in office. Consumer and business confidence in the economy has steadily climbed since 2017, which GOP lawmakers attribute to their $1.5 trillion tax cut and repeal of dozens of Obama-era regulations.

Republicans will spend the next three months claiming credit for the strong economy as they try to protect their vulnerable House majority. But that pitch has been complicated by the rising costs of trade tensions spurred by Trump's tariffs, which have threatened the livelihoods of farmers and manufacturers in areas critical to GOP support.

Tariffs imposed on U.S. agricultural exports in response to Trump’s levies on imported steel, aluminum and Chinese goods have cost American farmers and manufacturers billions of dollars in canceled sales and rising overhead costs. Some U.S. businesses have also delayed or canceled planned expansions, according to Federal Reserve officials.

Industry and agriculture anchor the economies of states that handed Trump the White House in 2016, and a protracted trade war could cost the president and his party come November.

“I'm hoping the administration and the president are really careful on these things,” said Rep. Randy HultgrenRandall (Randy) Mark HultgrenJordan hits campaign trail amid bid for Speaker Doubts shadow GOP push for tax cuts 2.0 Election handicapper moves 10 races toward Dems MORE (R-Ill.), whose district includes many soybean farmers. "I hope something happens pretty soon because there's a lot of pain that a lot of our farmers are already feeling."

Trump has presided over a strong economy since taking office. Unemployment has remained close to 4 percent, there are more job openings than workers looking for them, and the U.S. is on pace for 3 percent annual growth for the first time since 2015.

The president and Republicans touted Friday’s gross domestic product report for the second quarter of 2018, which showed the economy expanded at a 4.1 percent rate in the April-June quarter, as proof that their policies were working.

“Everywhere we look, we’re seeing the effects of the economic miracle all across America,” Trump said in a Friday press conference.

The growth report is another useful data point for Republicans. But economists are skeptical that the U.S. can maintain that level of growth throughout the year.

Analysts said that much of the second-quarter growth spike was driven by several one-time factors. These include a surge in consumer purchases spurred by tax cuts, a $300-billion boost to federal spending and a global rush to buy U.S. soybeans before retaliatory tariffs kicked in.

"The economy got goosed up by tax cuts and enormous spending,” said Steve Bell, a veteran Republican economist and policy adviser. “If you goose the economy like that, especially an economy that’s slowly growing, yeah, you can get 4.1 percent, but I don’t think it’s sustainable.”

White House officials on Friday argued that the economy could keep up its second-quarter pace because of rising investment in business equipment and other productivity drivers essential to strong growth.

“If we look at the data today, we can see the proof in the pudding that the president’s policies are working," said Council of Economic Advisers Chairman Kevin Hassett.

The U.S. economy is widely expected to remain strong through the election, but deepening damage from tariffs could wipe out the benefits of expansion in major industrial and agricultural hubs.

That economic damage could pose political consequences, especially within months of a critical election.

“You’ve got a very short window within which voters have to make up their mind,” said Douglas Holtz-Eakin, chief White House economist for former President George W. Bush. “In that window, you really don’t want to have bad news, and tariffs are in and of themselves bad news.”

Trump has tried to limit the economic damage of his trade policy and keep morale high among farmers and manufacturers. The Agriculture Department on Tuesday announced it would offer $12 billion in aid to farmers hindered by retaliatory tariffs, and Trump asked for time to push for fairer trade terms.

“The farmers will be the biggest beneficiary. Watch. We’re opening up markets. You watch what’s going to happen. Just be a little patient,” Trump said during a speech in Kansas City, Mo., on Tuesday.

While Trump’s tariffs are widely unpopular among GOP lawmakers, most Republicans have attempted to trust the president’s negotiating tactics and their constituents’ ability to stomach short-term pain.

ADVERTISEMENT

“People are concerned about this back and forth, but they're willing to give the president an opportunity to put new leverage on our trading partners and get a better deal,” said Rep. Greg WaldenGregory (Greg) Paul WaldenHouse GOP blocks Trump-supported drug pricing provision from spending bill GOP turns its fire on Google Hillicon Valley: Twitter chief faces GOP anger over bias | DOJ convenes meeting on bias claims | Rubio clashes with Alex Jones | DHS chief urges lawmakers to pass cyber bill | Sanders bill takes aim at Amazon MORE (R-Ore.).

Even so, Republicans have grown increasingly concerned as an end to trade tensions proves elusive.

The Trump administration is moving toward imposing tariffs on $200 billion in Chinese imports, and the president said he’s willing to impose a levy on all goods exported by the country.

Trump has also floated tariffs on foreign automobiles, which could devastate the European economy and several U.S. auto plants.

Further U.S. tariffs would likely lead to more painful retaliation against American goods, landing a potential economic blow within weeks of the midterm elections.

“For most Americans, they have the best economy of their lifetimes. And I believe it is principally due to one man: President Donald Trump,” said Rep. Jeb HensarlingThomas (Jeb) Jeb HensarlingMidterms to shake up top posts on House finance panel Kavanaugh hires attorney amid sexual assault allegations: report Did Congress just settle for less than best plan to reform housing finance? MORE (R-Texas) at a CNBC breakfast event Wednesday.

“And if we lose all that prosperity, it will be principally due to one person: President Donald Trump.”