So much for the Trump economic miracle

Not one to hide his light under a bushel, President Trump keeps telling us that the U.S. economy has never performed better than under his brilliant stewardship. He does so even though the economic data tell a very different story. He also does so even though there are growing indications that his economic policies are mortgaging our economic future.

Since assuming office in January 2017, the economy has grown at only a marginally faster pace than it did during the Obama administration. This has been the case despite the big tax boost the economy received in 2017. At the same time, stock market prices, which are President Trump’s favorite economic indicator, have increased at around half the pace that they did in President Obama’s first three years in office.

Meanwhile, because of the large tax cut, the economy has developed a twin budget deficit and trade deficit problem that threatens the country’s longer run economic growth prospects.

Among the key economic promises that Trump made at the very start of his administration was that his policy of aggressive tax cuts and economic deregulation would lead the US economy into the promised land of sustainable economic growth of between 3 and 4 percent a year.

He also assured us that the 2017 tax cut would largely pay for itself through the higher economic growth that it would generate. In his view, there was therefore no reason to worry unduly about the prospect of a ballooning budget deficit.

Sadly, the economic data indicate that Trump is nowhere near delivering on his economic promises. Over the past year, far from growing at the promised 3-4 percent rate, the economy has been growing at barely 2 percent. This takes the average economic growth achieved since Trump took office to a little more than 2.25 percent or to a pace not very different from the average growth rate achieved during the Obama administration. 

More troubling yet for future economic growth prospects is the fact that far from getting the investment boom that we were promised, we have now had two consecutive quarters of negative investment growth. This would suggest that investors have been using the tax cut not so much to expand productive capacity as was promised but rather to engage in share buybacks.

Trump’s soothing assurances about the budget deficit also have been belied by the facts. According to the Congressional Budget Office, far from paying for themselves, the Trump tax cut has given rise to the dismal prospect that we will now have budget deficits exceeding 5 percent of GDP for as far as the eye can see. As a result, the public debt is now well on a course to exceed 100 percent of GDP. 

The major deterioration in the country’s public finances under Trump’s watch will limit the scope for resorting to budget stimulus policy in the event that the economy were again to relapse into a recession. That in turn would likely make any future economic recession deeper than it need otherwise have been.

Yet another of Trump’s grand economic promises was that he would pursue an America First trade policy with a view to leveling the international economic playing field and to eliminating the U.S. trade deficit. Here too the data would suggest that Trump is failing to deliver.

Indeed, according to the most recent trade numbers, far from having declined, the U.S. trade deficit is now running at some 40 percent above the level it was running when  Trump first assumed office. This should come as no surprise considering that the increased budget deficit under Trump’s watch has constituted a major drain on the country’s level of savings.

All of this should not be read as an indictment of tax cuts and de-regulation as a means of promoting economic growth. Rather, it should be read as an indication of the high cost of President Trump’s trade wars and his repeated attacks on globalization. By creating an environment of considerable investor uncertainty, Trump seems to have neutralized his attempts to use tax policy and deregulation to get the economy onto a higher growth path.  

Hopefully, Trump will soon find a way of dialing back his protectionist trade policy. If not, we should brace ourselves for continued lackluster economic performance during the remainder of his term. 

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.