Trump′s economic boom stalked by trade fears | Business| Economy and finance news from a German perspective | DW | 19.06.2018
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Business

Trump's economic boom stalked by trade fears

The US economy is in excellent health. Unemployment is very low while consumer and business confidence is at record highs. Is Donald Trump a miracle worker, or is a darker vista waiting over the horizon?

"Our economy is perhaps BETTER than it has ever been. Companies doing really well, and moving back to America, and job numbers are the best in 44 years."

There will be no prizes for guessing either the author of the above quote or the medium on which it was delivered. President Donald Trump's tweet on Sunday afternoon was typically hyperbolic — there is little evidence to support the claim that the American economy is in its best shape in 242 years, after all.

Nonetheless, the US president has a point:the American economy is doing well. Despite the many trade conflicts brewing between it and several of its biggest partners from Canada to the EU to China, on many important indicators, the US economy looks to be in robust health.

Read more: The economy, stupid? Trump's first year

Trump's many opponents might be quick to point towards the famous line about "lies, damned lies and statistics" but likewise his supporters feel there is considerable evidence to support the view that the US economy is doing far better than it ever did under President Obama or indeed, under many of Trump's most recent predecessors.

The mood is good

Among the figures that support the latter view are those relating to economic sentiment, consumer confidence and growth forecasts.

According to data from the National Federation of Independent Businesses, there is more optimism in 2018 among small US business owners than at any time since they began measuring such sentiment in 1973. A growing percentage of them believe that "now is a good time to expand."

Among the bigger players, all the way up from medium-sized enterprises to the corporate giants of the S&P 500, it's a similar story. The major tax reform package, passed in December last year, excited corporate America and coming alongside promises — and increasing action — on deregulation and the settling of trade scores with China and others, has further enthused business leaders and rallied them behind Trump's cause.

With the earnings of listed US firms rising sharply in Q1 of 2018, investment has also shot up in proportion. That has cemented a growing sense of consumer optimism, reflected in figures which show a 6 percent rise in US consumer spending in retail and hospitality between May 2017 and May 2018.

With both business and consumer sentiment on the rise, some economists have begun to raise their growth forecasts for the US. JP Morgan, the US investment bank, is now forecasting a US growth rate of 4 percent for Q2 while the Atlanta Federal Reserve is forecasting just under 5 percent. Such a rate would be a remarkable increase on what was previously expected and should it come to pass, would reflect a buoyancy not seen in more than 20 years.

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Weightier indicators also look healthy. The unemployment rate, hovering at around 3.8 percent, is at its lowest level in 18 years and the country is on the brink of full employment. All of this has led to continued bullishness from Trump and his supporters about the efficacy of his economic policies — hence Sunday's tweet.

‘Phenomenal if it comes to pass'

Previously, critics of Trump's economic policies have argued that many of the trends he points to as his own achievements have been in evidence for several years, as part of the gradual economic recovery that followed the worst years of the global financial crisis. Yet increasingly, it is his own pro-business policies and rhetoric which appears to be driving the positive economic sentiment in the country.

Professor Michael Burda, an American economic expert based at Berlin's Humboldt University, says the "whole swarm of positive data" is "extremely good news."

"The last time I looked at some of the estimates, we were looking at 4.5 percent in the second quarter of this year. Which is phenomenal if it comes to pass," he told DW. "But this is not what you want if you don't like the current president because these things are generally a good predictor of what will happen in the elections."

Yet it is worth remembering that despite the undeniably positive economic data — which Trump may justifiably take some credit for — these are still early days to assess his economic policies. The tax cuts are still barely six months in place while the possibility of the current trade tensions escalating into a full blown trade war remain strong.

While many in the corporate sector are still hopeful of positive consequences from Trump's trade stance with the likes of China, Canada and the EU, Burda believes the possibility of serious retaliation from those countries presents a threat to US economic well-being.

A warning from history

Back in March, a major study on the biggest risks to the global economy by the Economist Intelligence Unit found the possibility of a global trade war to be at the top and Burda believes that remains the economic issue that could yet trip Trump up and make the gloomy predictions about his presidency come true.

Back in April, over a thousand economists — including 14 Nobel prize winners — wrote a letter to President Trump warning that his "economic protectionism" risked repeating the mistakes the US made in the 1930s. A similar letter was sent to Trump by hundreds of economists before the 2016 election.

While Burda says the currently positive US economic figures cannot be denied, he also says it is too early to say that those who doubted Trump on the economy are wrong.

"If you go back and look in your history books, you'll see that when the Smoot-Hawley tariff act of 1930 was passed, some of the most prominent US economists of the day signed a huge petition urging Congress not to pass this law, which was driven by a lot of populist malarkey.

"President Hoover signed it reluctantly but the economists were concerned and they were proved right in the end. This tariff act prompted retaliation, the Europeans and the Canadians shot back in 1930 and 1931 and we ended up having this trade war that accompanied the great depression.”

Going by the current figures, a great depression looks a long way off right now. But the historic comparison is obvious.

"It looks like history could be repeating itself," says Burda. "So it is too early to say that these guys were wrong."

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