Donald Trump: Economic czar?

Ever since Donald Trump assumed charge as the President of the United States on January 20, 2017, not a single day passes without some controversy or the other. Trump’s outspoken criticism of top leaders of his Nato allies is well known. His firing of almost all the top echelons of his administration has not even spared the secretary of state. His own election campaign is under the scanner with the Robert Mueller investigation reaching an advanced stage. At the same time, it is necessary to reflect on the performance of the US economy during the last 25 months, which has received comparatively little coverage in the media.

Mr Trump in recent months has been saying “We have the best economy we have ever had in the history of our country”. According to the Washington Post, Mr Trump has repeated this at least 40 times. When he took charge in January 2017, he vowed to achieve a growth rate as high as 6 per cent. According to the US department of commerce, the economy grew at an annualised rate of 3.2 per cent in the third quarter of 2017. GDP growth reached an annualised rate of 4.2 per cent in the second quarter of 2018. Though this is the best for several years, it was still less than the 4.9 per cent achieved in the third quarter of 2014.

Daniele Polumbo, a data journalist, draws attention to the fact the Dow Jones Industrial Average not only rose to record highs throughout 2017 in a run that stretched back to August 2016, but broke through the 20,000 mark for the first time 10 days after Mr. Trump’s inauguration. It is now close to 25,000. Oil has fallen by double digits, with the US becoming a net exporter in November 2018 for the first time in 75 years. Similarly, Standard & Poor’s 500 Index and the Nasdaq also reached historical heights.

Corporation tax cuts prior to Christmas 2017 gave a big boost to US shares coupled with Mr Trump’s US-centric policies, clampdown on the bureaucracy and promises of investment in infrastructure have been cited as factors responsible for this phenomenon. According to the October 2018 report of the Reality Check Team of BBC, the Dow reached record highs under the Trump Presidency “largely unfazed by geo-political risks like rising trade tensions with China and Trump’s decision last year to ditch the Trans Pacific Partnership (TPP) trade deal”.

The unemployment rate in September 2018 was 3.7 per cent, the lowest since 1969. In fact, the downward trend had started during the Barack Obama years. According to Ryan Sweet of Moody’s Analytics, the US now has a greater proportion of older and better educated workers, both of whom tend to have lower unemployment rates. According to Mr Sweet, the unemployment rate was below four per cent in 2000 and demographic changes since then would suggest the current rate should be even below the 3.7 per cent in September 2018. African American unemployment levels have also registered record low levels. In May 2018, unemployment for black Americans fell to 5.9 per cent, the lowest since the 1970s. Ivanka Trump proudly tweeted that the unemployment rate for women was at a 65-year low.

On February 1, the labour Department reported that payroll has increased by 304,000 in January, which was about 130,000 more jobs more than what economists in Wall Street had been predicting, notes John Cassidy in the New Yorker: The job gains were widely spread across the economy, with construction, health care, retail and leisure, and hospitality showing particular strength. The report also said wages are still rising at an annualised rate of more than three per cent, while consumer price inflation is falling, because of cheaper energy prices. That inflation-adjusted wages are rising, is the key point according to Mr Cassidy.

If Mr Trump wants to go down in history as the greatest jobs-producing president of the US, he will have to create more than 18.6 million jobs, estimates Kimberly Amadeo in the January 28 issue of The Balance. While Bill Clinton created many jobs, Mr Trump will have to create at least 32.7 million jobs to beat the record of President Franklin D Roosevelt, who had increased the number of jobs by more than 21 per cent. Ms Amadeo notes that the construction industry makes the most efficient use of federal dollars to create jobs. A study by the University of Massachusetts at Amherst found that $1 billion spent on public works created 19,795 jobs, which was better than defence spending, which created 8,555 jobs at the same cost.

Mr Trump’s plan is to create jobs by eliminating outsourcing and bringing jobs back from Japan, China and Mexico. The US lost 34 per cent of its manufacturing jobs between 1998 and 2010. Many were outsourced by US companies to save money while others were eliminated by new technology (robotics, artificial intelligence and bio-engineering). Mr Trump’s thrust on infrastructure development (the “Rebuild America” programme) envisages spending $200 billion over 10 years to match $800 billion in business spending. While this will create one million apprentices in two years, it also requires the approval of Congress.

Mr Trump’s critics, however, hold that GDP growth was much higher in the 1950s and 1960s. Megan Black, assistant professor of history at the London School of Economics, notes that the post-war era witnessed tremendous economic growth, most notably in manufacturing, agriculture, transportation, trade, finance, real estate and mining, and back in the 1950s, the unemployment rate was even lower than the current rate of 3.7 per cent.

According to Mark Zandi, chief economist at Moody’s Analytics, “We are experiencing a boom now but it is increasingly likely it will bust early in the next decade when the fiscal stimulus fades, and the economy struggles to manage the much higher interest rates.” Mr Zandi predicts that the next recession will arrive on June 20, 2020.

It is not fair to downplay Mr Trump’s achievements by citing post-war data. There is no denying the fact that Mr Trump has transformed the US into a booming economy in less than two years.    

The writer was a Staff Member of the International Monetary Fund, Washington DC

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