After about a year and half in office, President Donald Trump’s economic policies have begun to return the U.S. to true economic prosperity.
The U.S. Bureau of Economic Analysis (BEA) announced that in the second quarter of this year GDP grew at a 4.1% annual rate.
It has been 13 years since the U.S. economy has had annual growth of at least 3%, which is still below the long term U.S. average growth rate. It has been nearly two decades since the annual growth rate was at least 4%.
That represents the longest period of economic stagnation in U.S. history. In fact President Barack Obama is the first president in history to serve a term in office without having at least one year where economic growth was at least 3%. Obama averaged economic growth of just above 2% annually, claiming that this was the “new normal.”
The poor growth has caused numerous economic and social problems. For the last decade recent college graduates had a difficult time finding at least one good job offer. Many new grads were forced to accept positions for which they were over qualified and didn’t need the expensive college degree.
Because the grads accepted these jobs, workers with less than a college degree saw no opportunities. Millions of these workers became discouraged and dropped out of the labor market, resulting in a record low labor force participation rate.
The poor economy led to worker dissatisfaction for those underemployed and a reliance on government assistance to simply sustain themselves, for those discouraged workers. This eventually angered those people which helps explain why there is so much anger present in the U.S. today. Fortunately, Trump has made economic growth his top priority. His efforts are paying off.
Obama’s poor economic performance was due to a different set of priorities. Obama top priority was to cure perceived social injustices, rather than setting growth as the top priority. Obama believed it was an injustice that every American did not have health insurance. It was an injustice that food stamps and welfare were not more widely available.
Obama further believed that it was an injustice that some workers made hundreds of times more than other workers. It was an injustice that big banks were able to grant mortgages and loans to people who really couldn’t afford them. As Obama addressed each of those perceived injustices, he added burdens to the economy which slowed economic growth.
It’s no wonder Obama felt 2% growth was the new normal. Of course if the population is growing at near 1%, then a 2% growth rate doesn’t provide much extra output.
Trump’s growth inducing economic policy is just starting to show results. In addition to removing burdensome regulations and cutting taxes in a manner that stimulates demand while adding new capital to increase supply, he is tackling the trade issue. For decades the U.S. has given favorable treatment to our trading partners at the expense of America.
Growth has further been reduced because hundreds of billions of dollars annually flow out of the U.S. as a result of these lopsided trade agreements. Trump, a businessperson and not a seasoned politician, wants the trade issue solved quickly instead of kicking the can down the road as prior presidents have done.
Currently, if a European company manufactures a car in Europe and sells it in the U.S., the company pays a 2.5% tariff. If an American company makes a car in the U.S. and sells it in Europe, a 10% tariff is charged. The result is we buy lots of their cars and they buy few of ours.
The lopsidedness is worse with China and our NAFTA trading partners Canada and Mexico.
Trump imposed crippling tariffs on the European Union (EU) which accomplished the goal. Trump’s tariffs created a sense of urgency which brought the EU quickly to the bargaining table. The U.S. and the EU agreed to work toward Trump’s ultimate goal of having no tariffs on anything. This is what free and fair trade looks like.
Mexico has recently expressed their interest to renegotiate NAFTA and Canada will likely soon follow. U.S. tariffs will also cripple China’s debt heavy economy which Trump believes will bring China to the bargaining table.
In spite of what many economists may be saying, the third quarter will likely see GDP growth greater than the 4.1% seen in the last quarter. Business investment is increasing, workers incomes are increasing, foreign markets are opened up to US goods and the regulatory and tax climates are opening the door to future growth.
Although there will be quarterly fluctuations, GDP will likely grow by at least 4% for the foreseeable future. That will lead to a return of American prosperity. Americans have forgotten what true prosperity feels like. We are beginning to remember now.
Dr. Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years. @mbusler www.facebook.com/fundingdemocracy