Contradicting Messages on The Economy

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By Dave Smith, Senior Contributor, US Daily Review.

“Well, which is it, young feller? You want I should freeze or get down on the ground? Mean to say, if’n I freeze, I can’t rightly drop. And if’n I drop, I’m a-gonna be in motion.” – Feisty Hayseed in Raising Arizona

The U.S. Bureau of Economic Analysis has released its 2nd quarter Gross Domestic Product results. The verdict: real GDP growth of 4.1%, slightly less than predictions of 4.2% by Bloomberg, 4.5% by the Wall Street Journal, and as much as 4.8% predicted by President Trump himself, but still excellent news – the best growth numbers since 2014, when the US economy averaged 5% growth in the 2nd and 3rd quarters. The President was exuberant, tweeting of “an economic turnaround of HISTORIC proportions”. There has been good news on the unemployment and the personal income front as well, with the latest Bureau of Labor Statistics release showing unemployment remaining low at 4.0%, and the BEA reporting an increase in personal income of 0.4%. The President and his supporters have been quick to highlight what has been mostly good news economically.

This seems to be in contradiction to the President’s statements regarding trade, where he claims that “our farmers and country get ripped off”, and that we “[l]ost $817 billion on [t]rade last year”. He has excoriated “bad trade deals” and the so-called “trade deficit”, saying that “if we didn’t trade, we’d save a hell of a lot of money.” Consistently painting a negative picture about “being taken to the cleaners by our trading partners”, his response has been to impose tariffs: on steel and aluminum, solar panels, washing machines, and on billions of dollars of imports from China. Most of these tax increases did not take effect in the 2nd quarter, so their impact is yet to be felt (although it has been suggested that soybean producers increased exports to China before retaliatory Chinese tariffs took effect).

Dave Smith Said That

So the question becomes: which is it? Is the economy soaring in “historic proportions”, or are we “getting taken to the cleaners”? The two statements seemingly contradict each other. The lowest annual trade deficit that the U.S. has had in approximately two decades was in 2009, during the height of the financial meltdown and a contracting economy; meanwhile, the unemployment rate has been on a steady decline since 2010 while the trade deficit has been increasing, and the economy has been steadily growing (although often sluggishly – there were only 4 quarters of 4% or greater growth under President Obama) since the recovery from the Great Recession.

These numbers suggest that the stronger economy drives larger trade deficits rather than trade deficits impeding growth. As the economy grows, American consumers and businesses have the means to purchase more goods and services, many of which are made overseas. Nor do “trade surpluses” seem to drive economic growth: Venezuela has had nearly two decades of annual trade surpluses, and the United States ran trade surpluses nearly every year during the Great Depression. Adam Smith, writing in Wealth of Nations, said that nothing “can be more absurd than this whole doctrine of balance of trade.”

President Trump claims that “tariffs are the greatest” and that “trade wars are good, and easy to win, even as some of the benefactors of his earlier tariffs are now feeling the negative impacts of a “very challenging cost environment”. As more of the tariffs become enacted in the 3rd quarter and the effects of previously-enacted tariffs begin to ripple through the economy, all eyes will be on the BEA to see who is correct about the sustainability of 4% growth: economists or the  President.

https://www.marketwatch.com/story/us-tech-stocks-hint-at-rebound-ahead-of-gdp-twitter-results-2018-07-27?siteid=yhoof2&yptr=yahoo

Born in the same county as Davy Crockett in East Tennessee, Dave found his way to Texas where he works in the petrochemical industry. He’s written and spoken about politics on various media outlets including Fox, ABC, and Townhall. He is a graduate of Tennessee Tech with a degree in chemical engineering. Follow Dave on Twitter: @semperlibertas.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.
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