Can We Believe in Growth?
Terry H. Schwadron
The figures that came in the last week show the U.S. economy is growing at an anemic 0.7 percent rate, slowest pace in three years. It should be sobering to the White House, which, in the same week, said trillions of dollars’ worth of tax cuts could be financed solely through a rate at 3, 4 or 5 percent.
President Trump promotes himself as a pro-growth guy, clearing environmental, consumer protection, finance rules as needed to goose the growth of companies — and jobs. In that name, he has labeled America’s trade agreements as “disasters.”
Over the weekend, he ordered a review of all trade agreements to unearth any provisions that do not favor the United States.
And, in a very confusing manner, Mr. Trump signaled last week that the United States would withdraw from NAFTA, for example, only to revise his opinion within hours after calls from bewildered leaders in Mexico and Canada, and a presentation by Secretary of Agriculture Sonny Purdue, who showed him a map of how U.S. farmers would be affected by withdrawal.
The new growth report underscored the challenge the White House faces in reaching its target of 3 percent growth, an expansion Trump not only promised on the campaign but is counting on to fuel his broader economic agenda. If that growth fails to materialize, the tax cuts would lead to a massive increase in the national debt as the federal government borrows to make up the gap between spending and falling revenue.
The Washington Post quoted the chief economist of Moody’s Analytics as saying, “Tax cuts are a good idea — they help growth — but only if they’re paid for. The proposal the president put forward on Wednesday would blow a big hole in the budget, and that won’t help the economy.”
Needless to say, Commerce Secretary Wilbur Ross used the growth numbers to argue that the Trump incentives are needed now more than ever to “overcome the dismal economy inherited” by the administration. Still, all presidents learn that there are limits on guiding the economy, which seems to have a mind of its own.
Of course, in the night-as-day world of Washington-speak, the President has taken credit for any hint of job additions, even if they had been in the works for months, but not for something perceived as more negative, like these economic growth figures. Analysts did offer reasons for the poor numbers, including non-seasonal temperatures and the delayed effects of particular Trump policies. Overall, analysts said the next quarterly report will appear more positive.
The single-most exception to all this has been the performance of the stock market, which is up substantially during the same period, mostly based on the promise of tax cuts and a regulation-free environment. Traders see bigger profits for companies ahead.
Still, according to the Post, in the long term, these same analysts expect GDP growth to hover around 2 percent, warning against reliance on Trump promises for doubling the growth of the economy. Long-term changes in the economy, including the aging of U.S. workers, the growth of automation, and retirements of boomers will have effects as well. At the beginning of 2000, 67.3 percent of the adult population was working or looking for work. As of last month, that figure was 63 percent.
Throw in a changed regulation environment, investment in infrastructure, a strong U.S. dollar, a campaign against immigration and you can see how this becomes more complicated for accurate prediction. Surveys show that consumer and business confidence are up since the election, creating one a divergences between measurements of how people feel about the economy and their future and the hard data that government statisticians release each month.
Among the targets for economic improvement, of course, have been renegotiation or withdrawal from multinational trade agreements.
That raises the question: What exactly is wrong with NAFTA?
Mr. Trump basically argues that the treaty favors Mexico or Canada over the United States, and that Americans need to go after violations and abuses. If so, there are a lot of reasons.
But as it turns out, Obama’s proposed Trans-Pacific Partnership agreement would have addressed some of the specifics, including inviting American dairy farmers to sell milk in Canada. It would have modernized NAFTA agreements, and provided an opportunity to settle the Canadian lumber issue that Team Trump made a big deal just in the last week.
President Trump apparently also wants to update the rules governing auto manufacturing. At the time NAFTA was approved, Mexico had small, inefficient auto plants, but now they supply 30 percent of all U.S. auto imports. Autos and auto parts sold tariff-free within the NAFTA area must be at least 60% assembled in the United States, Canada or Mexico, according to the agreement.
Most economists believe the trade deficit’s root cause has less to do with trade policy than the fact the U.S. spends more than it saves and therefore draws in goods from abroad. Still, Team Trump has issued orders for a wide-ranging review of trade policy agreements to identify any clauses that do not put America’s interest First.
There is an opportunity here for understanding rather than grandstanding. Let’s hope those around the President actually take the time to understand and explain.