(Feb 21): The White House acknowledged what many economists considered obvious through much of last year: President Donald Trump’s trade stance depressed economic growth and business investment.
“Uncertainty generated by trade negotiations dampened investment,” Trump chief economist Tomas Philipson told reporters in a briefing on the annual Economic Report of the President released on Feb 20.
The admission contrasted with Trump’s repeated assertions that his tariff tactics hadn’t hurt the economy while swelling the government’s tax coffers.
Even so, the deleterious effect of trade uncertainty got barely a mention in a 435page economic report that frequently extolled the president’s programmes and argued that they have led to a “great expansion” that is benefiting a broader swathe of Americans.
Philipson, who is acting chairman of the Council of Economic Advisers, declined to say how much of an effect trade uncertainty has had.
He did though point to a Federal Reserve study that suggested it could reduce gross domestic product by about 1%, at the same time adding he didn’t necessarily agree with that estimate.
The economy grew 2.3% last year after expanding 2.9% in 2018.
“Uncertainty about trade policy is one often-cited culprit in the manufacturing slowdown,” Philipson and fellow CEA board member Tyler Goodspeed wrote in the economic report.
“However, other reasons for the global manufacturing slowdown also preceded, or were contemporaneous with trade,” including a deleveraging-led deceleration in China’s economy.
“These reasons make it difficult to isolate the effects of trade policy uncertainty, and possibly result in an upward bias of its effects on the global economy,” they added in the report.
Philipson told reporters the US economy should benefit as uncertainty over Trump’s trade policies fades. Global growth will also be aided in the long run by a “more balanced, reciprocal” trading system, according to the report.
The US and China in January signed a partial trade deal that left some of the thorniest issues between the two economic power houses unsettled. The Trump administration is also in the midst of wide-ranging trade talks with the European Union.
Growth credit
Not surprisingly, Philipson effectively aligned himself with Trump in the president’s twitter spat this week with his predecessor, Barack Obama, over who deserves credit for the record long US expansion.
After Obama proclaimed that his US$800 billion ($1.12 trillion) plus stimulus package 11 years ago had paved the way for the upswing, Trump fired back, calling his predecessor’s comments a “con job.” “Three years into the Trump administration, the US economy continues to outperform pre 2016 election expectations,” Philipson told reporters.
“The economy is lowering inequality both in terms of income and wealth. That reverses the previous part of the expansion.”
In a novel analysis, the White House report argues that Trump’s deregulatory efforts will lift household incomes significantly by reducing how much Americans have to spend on such things as healthcare and access to the internet.
Philipson told reporters that he didn’t have a lot of concerns about the durability of the 10 1/2 year old expansion. “We have laid the groundwork for minimising the probability” of a recession, he said.
He also played down concerns about the potential impact of the coronavirus on the US economy. “I don’t think the coronavirus is as big a threat as people make it out to be,” he said.
