Despite pockets of global weakness, the Trump economy will prevail strongly through 2020 and further on in the future. The market proceeds to be lifted by corporate tax cuts that are persuading investment, deregulation, and cheap energy. These positive advances are improving global competitiveness and substantial trade reforms that are equalizing the playing field for American laborer and manufacturers. On the wings of such growth-inducing systems, the Trump economy has produced over 6 million jobs. Including close to about 500,000 in manufacturing.
Unemployment rates for African-Americans, Hispanics, veterans, and women float near historic lows. Wages are climbing, especially for blue-collar workers. Over 1 million prime-age laborers have retreated to the labor force, and strong customer spending higher expectations point to robust third-quarter growth. This optimistic production notwithstanding, the contrast between a good Trump market and a great one in 2020 will ultimately hinge on a set of stars outside direct White House control. Key among them are Congress, the European Central Bank (ECB), the Federal Reserve Board, and the governments of Britain, China, and Germany.
As stated by the independent U.S. International Trade Commission, Congress can improve gross domestic product growth by as significant as 1.2 percent. By quickly passing the United States-Mexico-Canada trade deal. USMCA would generate over 100,000 jobs while assisting to reshore the U.S. manufacturing base through strict laws of the origin, more rigorous labor and environmental protections, and clear enforcement provisions.
President Trump has fulfilled his promise to bargain one of the worst trade deals in American history. We are positive that Congress will rise beyond partisan politics and do what’s best for America’s farmers, ranchers, laborers, and manufacturers and pass the trade agreement. The Federal Reserve can offer as much as a point of further GDP growth in 2020 by hastily and aggressively decreasing interest rates. This is essential not because the Trump market is weak, but instead because it has lots of room to grow without triggering inflation.
With an opening 25 basis point cut in July, a premature end to balance sheet normalization and the chance of more rate cuts to appear. And the Fed seems to have revised its growth message. The European Central Bank also seems to have received the news that the European market is not performing at it’s best. Finland’s Olli Rehn, who sits on the ECB’s rate-setting board, has indicated an aggressive financial stimulus package for September.
As this new ECB stimulus reinforces economic pursuit in Europe, it should break through to the Trump market. By servicing demand for U.S. tradings still only if the Federal Reserve matches any ECB cuts. Contrarily, upward need on the U.S. bill from the ECB rate cuts will lessen demand for American exports. The puzzle here for the Fed is apparent. Any new ECB rate cuts will farther widen the now extensive range between U.S. bond yields and Euro bond yields. This spread is already unnecessarily restricting U.S. growth through undesired carry trade outcomes. As well as the currency as mentioned above effect, which is a considerable cause as to why the Fed must quickly cut rates.
In the chess match of central funding, the Fed does not establish rates in a vacuum and must answer equally speedily to any new easing by the ECB. Britain also has a vital part to play in any European healing by fixing a Brexit stalemate now holding at least some investment on the sidelines. Prime Minister Boris Johnson is likely to eliminate such investment possibility by Oct. 31 one way or another. Setting Brexit in the rearview mirror will also enable the U.S. and Britain to arrange a trade pact useful to both nations.
The latter part of the European problem is Germany, where the Bundesbank is now advising of a potential recession. There is increasing pressure both inside Germany and inside the European Union for Germany to ditch its “black zero” strategy of economic austerity. An important German fiscal stimulus blended with monetary easing by the ECB would give a European growth lift with sturdy and lasting legs, and constructive ripple impacts for U.S. exports and the Trump market.
As for China, its market started slowing way before President Trump was elected and long before the Trump taxes were imposed. China’s slowdown has essentially been a role of the government’s crackdown on shadow banks, falling productivity, rising labor costs, and the weaning off of a credit binge. Such deleveraging notwithstanding, China stays saddled with a massive debt repayment load, its debt to GDP ratio when factoring in small-town debts and state-owned industry balance sheets, has risen to over 300 percent.
Meanwhile, China has endeavored to offset much of the short-run result of the Trump taxes on its tradings by cutting prices, and through money devaluation, the yuan has declined by 12 percent following the tariffs start, though the tariffs have deliberately generated more financial pressure on China. These unpleasant volumes have forced Chinese producers and the Chinese government, not American consumers to carry practically the entire burden of the tariffs.
Trump tax pain is also pretty evident in the journey of foreign financing and key parts of the global supply chain from China. This disinvestment trend may be unchangeable unless China suddenly agrees to U.S. requests to restructure its market. As corporate officials around the globe more accurately evaluate the risks of losing their intellectual property and technologies to Chinese coercion and theft.
There are at the minimum two bits of good news in China’s suffering for the U.S. and global wealth. First, China may shortly launch a great additional fiscal stimulus. If China pulls this Keynesian trigger, this will help spur the economies of several of the developing nations that ship commodities like nickel, copper, and iron ore to China’s factory floor and improve stability in developing markets.
Second, disinvestment from China may be disruptive in the short run. However, the end result should be a more diversified, resilient, and secure global supply chain with expanded growth opportunities.
In summary, the Trump economy is strong. It will be even stronger if Congress, the Fed, the ECB, Britain, and Germany all implement commonsense policies.