Trump's Trade Deal W/China Looks Toothless, 2019 Growth Stagnates
In pursuing his trade war with China, Trump promised American workers and farmers that the tens of billions of dollars lost from reduced export access and higher costs would be made up by a comprehensive deal that dealt with the structural advantages China gave to its own industry. In recent weeks, however, it has become increasingly likely that a potential trade deal with China will not do that, and instead will only involve some increased purchases by the Chinese government. The New York Times, Wall Street Journal, and CNBC all report that any language in the deal requiring changes to China's intellectual property or industrial subsidies will likely be too vague to have any real effect, and will have few mechanisms for enforcement. This represents a startling defeat for the President. If Trump only wanted an increase in US exports, he could have simply signed the TPP trade deal on his first day in office, which was projected to increase US exports by over $350 billion annually by 2030 (compared to at most an additional $200 billion in annual exports to China under this deal, although even that would be offset by fewer exports elsewhere due to the resulting appreciation of the US dollar). Instead, he has significantly weakened both the US and global economies for gains that could have been accomplished two years ago.
Furthermore, while fourth quarter GDP came in above expectations at 2.6% (but still below the White House's "long term projection" of 3%, less than a year after the tax cut), early projections for 2019 growth show a significant reduction in growth. The Atlanta Fed sees only 0.5% growth in the first quarter of 2019, while the New York Fed and Goldman Sachs both project 0.9% growth. These growth downgrades come on the back of new data showing that in February manufacturing activity fell to its lowest level since November 2016. Trump's economic policies are largely responsible for this economic slowdown. His trade policies have led to a significant deceleration of global growth as well as a loss of key demand markets for US manufacturers and farmers, both of which have reduced US exports and production. In addition, his tax cut has now clearly failed to lift business investment as was promised by the administration. Non-defense capital spending today is at a lower level than it was in May 2018, and business investment has grown at an annualized average of 4.4% over the past two quarters, compared to a quarterly annualized average of 6.3% in 2017 before the tax cut was enacted. NDN has written a series challenging Trump's reckless trade policy for its harmful effects on the US and global economies, which you can find here. As well, you can read NDN's work detailing how the overall Trump economy has underperformed the strong Obama economy of 2015-16 here.
Weekly Notes On The Economy is a weekly column that NDN writes on the most recent economic news, policy, and data.