Boosted by President Trump’s tax and regulation cuts, the US economy surged in the April-June quarter to an annual growth rate of 4.1 percent. That’s the fastest pace for the Gross Do-mestic Product (GDP) since 2014, and almost double the rate of growth for the first quarter, which was 2.2 percent.
The Commerce Department’s GDP reflects the country’s total output of goods and services and is considered to be the best measure of the national economy’s strength.
Over the course of Obama’s eight-year presidency, the average GDP growth rate was only 1.8 percent, the slowest since the end of World War II.
When Trump ran for president, he insisted that his policies would stimulate the economy to grow at double Obama’s pace, and he is now proving it.
President Donald Trump told reporters, “I am thrilled to announce that, in the second quarter of this year, the United States economy grew at the amazing rate of 4.1 percent. We’re on track to hit the highest annual average growth rate in over 13 years. And I will say this right now, and I’ll say it strongly: As the trade deals come in one by one, we’re going to go a lot higher than these numbers.”
The president emphasized that the economic accomplishment in the first quarter “isn’t a one-time shot. I happen to think we’re going to do extraordinarily well in our next report next quar-ter. I think it’s going to be outstanding.”
BETTER ECONOMIC TIMES AHEAD
Trump predicted even better economic times to come. “We’re going to get a lot higher than these numbers and these are great numbers. We are now on track to hit an average GDP annual growth of over three percent and it could be substantially over three percent. Each point, by the way, means approximately $3 trillion and 10 million jobs. . . And that’s not including the fact that, since I was elected, we’ve created approximately $7 trillion of new wealth. . .
“If economic growth continues at this pace, the United States economy will double in size more than 10 years faster than it would have under either President Bush or President Obama.
“Perhaps one of the biggest wins in the report, and it is indeed a big one, is that the trade defi-cit, [which is] very dear to my heart, because we’ve been ripped off by the world, has dropped by more than $50 billion. $52 billion, to be exact. . . We haven’t had a drop like that in long time. . .
“The year before I came into office, private business investment grew at only 1.8 percent. Last year, it jumped to 6.3 percent. That was my first full year; we had to do a lot of things to get it to grow. And this year, it’s growing at 9.4 percent. So that’s a very tremendous increase. There hasn’t been an increase like that in . . . decades.”
A HISTORIC TURNAROUND
Trump contrasted the bleak economic situation he inherited from Obama to all that he has done after just a year and a half in office. “We’ve accomplished an economic turnaround of historic proportions. When I came into office, 1.5 million fewer prime-age Americans were working than eight years before. We had lost almost 200,000 manufacturing jobs under the previous administration. . . More than 10 million additional Americans had been added to food stamps, [in] past years.
“But we’ve turned it all around. Once again, we are the economic envy of the world. . . America is being respected again, and America is winning again, because we are finally putting America first.
“Everywhere we look, we are seeing the effects of the American economic miracle. We have added 3.7 million new jobs since the election. . .
“We are in the midst of the longest positive job-growth streak in history. New unemployment claims have recently achieved their lowest level in almost half a century. The African Ameri-can unemployment rate has achieved the lowest level in recorded history. . . The Hispanic un-employment rate has reached the lowest level, likewise, in history. The Asian unemployment rate has recently reached the lowest level, again likewise, in history. Women unemployment rate recently reached the lowest level in 65 years. . . Veterans’ unemployment is at its lowest level in 18 years. . . Unemployment for disabled Americans has hit a record low. . .”
AMERICAN MANUFACTURING IS BACK
“Since I was elected, we’ve added 400,000 new manufacturing jobs. Remember, [they were supposed to be] obsolete. I used to say, “Why is it obsolete? We have to make things.” Manu-facturing jobs are among our best jobs, and we’re just getting started. . .
“Ninety-five percent of American manufacturers are optimistic about their company’s outlook. And that’s the highest level, also, in history. . . Manufacturing wages are expected to rise at the fastest rate in over 17 years. Business and consumer confidence has reached historic highs.”
Trump highlighted the benefits from having “eliminated a record number of job-killing regula-tions. And with the help of Republicans in Congress, we passed, without one Democrat vote, the biggest tax cuts and reform in our history. . .
“As a result, more than six million Americans are now enjoying new bonuses, better jobs, and far bigger paychecks. . .
“In the first three months after tax cuts, over $300 billion poured back into the United States from overseas. We think it’s going to be, in the end, when completed, over $4 trillion will be back into our country.”
“At the same time, we are finally cracking down on decades of abusive foreign trade practice. We were abused,” Trump said, “like no nation has ever been abused on trade before, because we had nobody watching. They stole our jobs and they plundered our wealth. But that ended.”
NEW OPPORTUNITIES FOR AMERICAN WORKERS
Trump described the human benefits from his tariff policies that have put Americans back to work. “Yesterday, I was at Granite City Steel in Illinois. It was an incredible sight. We had an audience of steel workers, some of the roughest, toughest people you’ve ever seen. And half of them had tears coming down their face. . . because we opened a tremendous United States Steel plant. They’re opening up seven other plants. The steel industry is back. They’re open for busi-ness. And we need the steel industry. And the tariffs did it.”
At the end of Trump’s comments to the media at the White House on Friday, he asked his chief economic advisors, Kevin Hassett and Larry Kudlow, to add their own observations.
Hassett said that the GDP numbers were “the proof of the pudding that the President’s policies are working. And it’s not just in the top line, but it’s in the details.” These include the return of vitality to the “booming” American manufacturing sector, America’s new status as a dominant energy economy and exporter and Trump’s initial success in reducing the trade deficit by $50 billion.
Kudlow chose to praise the accomplishments of Trump’s pro-growth agenda, “even though it has only been in place for a short while. It is already beginning to work. Low tax rates. Roll-back of regulations. Unleashing energy. And trade reform to fix a broken world trading sys-tem.”
Kudlow added, “These tax cuts, particularly on the business and investment side, are going to be boosting wages, livelihoods, and jobs, for middle-American, ordinary, working folks. And it’s starting to take effect. And that’s why I agree with the president, this is a boom that will be sustainable. Frankly, as far as the eye can see.”
A KEY POLITICAL ISSUE IN NOVEMBER
The renewed strength of the American economy will be a major issue for Republicans during the November midterm election campaign. Trump’s ability to maintain the current pace of eco-nomic growth is likely to determine whether Republicans will be able to maintain their majori-ty control in the House of Representatives and strengthen their slim majority in the Senate. The Commerce Department will release its initial estimate of third quarter GDP growth on October 26, just 11 days before voters go to the polls.
During the 2016 campaign, Trump pledged to increase the anemic two percent annual growth rate of the Obama era by slashing taxes and unnecessary government regulations, and now he has kept that promise. Trump’s economic policies have reduced the unemployment rate to near-historic lows. American factories are hiring at the fastest rate in two decades. There are now more jobs open than there are workers to fill them. The high demand has drawn hundreds of thousands of formerly discouraged unemployed workers back into the labor market. To borrow a phrase from Ronald Reagan’s 1984 re-election campaign, as far as the health of the US econ-omy is concerned, “It is morning in America, again.”
The mainstream media played down the significance of the good GDP number, which had been widely anticipated in recent weeks. Trump’s critics had been predicting economic chaos ever since he ran for the White House. Liberal economists ridiculed Trump’s promise to restore America’s manufacturing base and bring back millions of lost industrial jobs. Obama admin-istration economists claimed that two percent GDP growth or less had become the “new nor-mal” for the American economy, which could never again be exceeded on a sustained basis. They have all been proven wrong, but the anti-Trump media which promoted these pessimistic predictions is still loath to admit it.
When Trump proclaimed, even before taking office, that he would save the jobs of workers at a Carrier air conditioning plant which announced that it would be moved to Mexico, President Obama mocked him and asked if Trump he had some type of magic with which he would save and bring back manufacturing jobs to the US. But Trump did save many of those Carrier jobs and created many more for American workers by cutting deals with domestic and international business leaders to increased their investments in the US economy.
DEFYING THE ECONOMIC EXPERTS
When Trump announced his tax cuts to spur the economy last September, Democrats blasted him for being fiscally irresponsible.
Economists said at the time that with the unemployment rate already low and the economy relatively strong, by Obama standards, a stimulus package was unnecessary because, with so many baby boomers going into retirement, there would not be enough workers for the new jobs that would be created. But again, the economists were wrong. Large numbers of discouraged workers are coming back into the American labor force to fill those new jobs.
The Trump tax cut plan gave an immediate boost to the American economy as soon as it was passed in December. Hundreds of companies announced one-time bonuses and hourly pay rais-es for their workers, and surprised Democrats were left to worry that in this case, their strategy of obstruction against all of Trump’s proposals was going to cost them dearly in the November midterms.
Now that Trump’s policies have boosted GDP growth to over four percent, instead of admitting their error, his liberal critics are saying the growth rate is not sustainable. They claim it was due to one-time factors such as the repatriation of US corporate profits that high taxes had trapped abroad, and the stockpiling of American commodities to get ahead of the recent tariff increases. For example, in May, soybean exports surged to fifty percent above normal to beat the effective date of a retaliatory tariff on US soybeans that had been announced by China.
One of the mainstream media’s favorite economists, Mark Zandi of Moody’s Analytics, said that the second quarter GDP was strong only because “it was juiced up by the tax cuts and high-er government spending.”
Zandi agrees that the growth rate for 2018 will hit three percent, the best in over a decade. But he is predicting that GDP growth will fall to 2.6 percent in 2019, and to just 0.9 percent in 2020, a presidential election year, enabling Democrats to accuse Trump of leading the US to the brink of another recession.
“We will come pretty close to stalling out in 2020 because the growth we are seeing now is not sustainable,” Zandi said.
THE KEYS TO SUSTAINED ECONOMIC GROWING
But members of Trump’s economic team, led by Reagan-era economic advisor Larry Kudlow and Treasury Secretary Steve Mnuchin, disagree. They point to several factors in the latest GDP report and predict even higher levels of sustained economic growth ahead rather than an-other downturn.
In an interview on Fox News, Mnuchin said, “we’ve been very clear since the campaign, the president’s economic plan has always consisted of tax reform, trade relief and regulatory relief and we said we were going to achieve three percent or higher sustained GDP, and that’s where we are.”
When asked how long the current growth rate would last, Mnuchin answered, “We are very fo-cused on the long-term sustained economic growth, which our plans have had. . . I don’t think this is a one- or two-year phenomenon. I think we definitely are in a period of four or five years of sustained three percent growth at least.”
THE AMERICAN CONSUMER IS BACK
According to the GDP report, consumer spending, which accounts for seventy percent of eco-nomic activity, rose to a four percent annual growth rate in the second quarter, as consumers began spending their higher take-home pay on autos and other big-ticket items, creating new demand for American industry. They increased their purchases of durable goods, such as wash-ing machines, by 9.3 percent in the second quarter, and on nondurable goods, such as clothing and gasoline, by 5.2 percent during the same period.
Kudlow noted that the estimated savings rate by American consumers has been revised upwards by $500 billion dollars. That is money consumers will be willing to spend because of their in-creased confidence in the American economy.
The narrowing of the US international trade deficit, one of Trump’s highest priorities, added a full percentage-point to growth in the second quarter.
Government spending also rose at a 2.1 percent rate, boosted by a budget deal that will substan-tially increase defense and domestic spending over the next two years.
BUSINESSES ARE INVESTING IN THE U.S. ECONOMY
Business investment grew at a solid 7.3 percent rate in the second quarter, which means more factories and companies are creating new jobs and increasing the productivity of American workers.
The provisions in the tax cut bill which enables businesses to immediately write off their in-vestments in new equipment has increased the rate of industrial capital spending. In response, many American firms, large and small, have accelerated their long-terms plans to upgrade and enlarge their facilities, creating a bootstrap effect for the overall economy.
For example, Bob Grote, whose company in Columbus, Ohio, makes food processing equip-ment, told the New York Times that everyone he has spoken to in his industry is “literally hav-ing banner years. . . [and] I don’t see any end in sight right now.”
Because the tight labor market has made it harder for his clients in the food industry to hire more workers, it has created more demand for the automated equipment he sells. As a result, Grote says, “We’ve spent more on capital equipment this year than we probably have in the last five combined.”
Kudlow also pointed out that inventories for American businesses unexpectedly fell by $28 bil-lion during the second quarter, which trimmed a full point from the final GDP growth number. Since the inventories will be rebuilt in time for the end-of-year shopping season, Kudlow and other economists believe that third quarter GDP growth is likely to reach or exceed the 4.1 per-cent rate it achieved in the second quarter.
The only downside to the second quarter’s GDP report was the housing sector, which shrank at a 1.1 percent rate. But in the longer term, the housing outlook is also positive because more American workers earning bigger paychecks ultimately means that more families will be able to buy their own homes.
Kudlow admitted that the Trump’s corporate tax cuts will take 18 months, until the end of fis-cal year 2019, to generate enough new business activity to fully pay for themselves by generat-ing more total tax revenues, but he justified the temporary increase in the deficit “a good in-vestment in America’s future prosperity and healthy economy.” Kudlow predicted that the in-creases in tax revenues due to faster economic growth combined with tougher restraints by the Trump administration on federal spending will eventually start bringing the budget deficit down.
TRUMP’S ECONOMIC BRAGGING RIGHTS FOR NOVEMBER
From a political point of view, the strong second quarter GDP report gives Trump bragging rights to use on the campaign trail for the next three months. He has already announced his plans to go campaigning for GOP candidates across the country to prevent Democrats from winning majority control in the House of Representatives.
Trump will also be campaigning on behalf of GOP candidates for the Senate seats of incumbent Democrats in up to 10 states that Trump carried in the 2016 election. Expanding the current GOP majority in the Senate would make it easier for Trump to confirm his appointments to the federal judiciary and to ratify the new trade agreements he is negotiating.
Democrats are fighting back by challenging Trump’s economic accomplishments. Senate Mi-nority Leader Chuck Schumer tweeted that, “The GOP promised their tax bill would be ‘rocket fuel’ for the economy. Instead, it blew up the deficit by a trillion dollars and sparked a surge in stock buybacks, benefiting the biggest corporations, their executives and wealthy shareholders while leaving middle-class families largely behind.” But Schumer neglected to mention the high growth rate and low unemployment numbers which have characterized the Trump econo-my.
A thriving economy is not a guarantee of electoral success, but ahead of the November mid-terms, Trump and the Republicans will be able to show that their economic policies are restor-ing American prosperity, without any help from the Democrats.
WHAT WILL THE FED DO?
An economic worry over which Trump has no control is the interest rate policy of the Federal Reserve. Some fear that the Fed could raise interest rates to restore their utility as a tool with which to regulate the economic cycle and control inflation. When the Great Recession hit in 2008, the Federal Reserved slashed interest rates to zero in an effort to stimulate economic ac-tivity, and then kept them near zero until 2016 because the Obama recovery was so weak. Since that time, the Fed has been cautiously raising rates a quarter-point at a time, so that they are now back up to 1.9 percent, which is still well below the five percent level they reached before the Great Recession.
Fortunately, there is no sign so far of an increase in inflation, which remains at roughly the Fed’s target level. Also, the 4.1 percent second quarter GDP growth rate was not high enough to trigger Fed concerns that the economy might be overheating. As a result, there has been no change in the expectation that the Fed will raise interest rates twice more by the end of the year to about 2.5 percent. At the same time, Trump has begun to urge the Fed to exercise caution and not raise interest rates so fast that they would discourage businesses from seeking new invest-ment capital or consumers from applying for mortgage and car loans.
Economists are more concerned about the impact of the tariff war Trump has just started with America’s main trading partners, especially China. The tariffs imposed on foreign-made steel and aluminum are already raising the prices charged by American manufacturers which use a lot of those materials in their products, such as home appliance makers Whirlpool and General Electric. Detroit automakers have also warned that their increased costs for steel due to the tar-iffs will eat into their profit margins because they can’t risk raising their prices in the highly competitive auto market.
The Trump administration has already offered $12 billion in assistance to US farmers whose exports have been impacted by retaliatory foreign tariffs.
Kudlow said that important progress has recently been made to eliminate the tariffs in trade talks with the EU and Mexico. Kudlow said that Trump’s goal for a trade deal is the same as his own. “The president has adopted a view with which I completely agree. He’s a free trader. And he wants to have no tariffs at all and no subsidies.”
An encouraging sign was the tentative deal which was announced last week with the visiting president of the European Commission, Jean-Claude Juncker. It will likely eliminate Trump’s threat to place tariffs on European-made cars as well as the current tariff on EU steel.
Kudlow said the Europeans are offering to buy more American-grown soybeans, whose exports have been hurt by a punitive tariff imposed by China, and they also want to buy more natural gas from the US to reduce their energy dependence on Russia. These developments have made Kudlow much more optimistic about trade relations with the EU. “Now, all of a sudden, we’re on the right path. I like that very much,” Kudlow told CNN.
TRUMP STANDING UP TO CHINA ON TRADE
The possibility of an all-out US trade war with China remains the greatest single concern about Trump’s economic policies. The US has a huge, unsustainable trade deficit with China of about $500 billion a year. China also engages in unfair trading practices, including currency manipu-lation, protectionist limitations on foreign investments, and theft of American intellectual property. Kudlow says that Trump is the first American president willing to stand up to China’s trade abuses in a serious way.
On CNN, Kudlow was reminded about his long-time opposition to tariffs, having once written that “Tax hikes are really tax hikes.” When asked how he could support Trump’s tariff increas-es, Kudlow responded, “if they’re targeted for good purpose, as per China, I think the answer is absolutely yes. That’s always been my view. Most free traders agree. China has not played by the rules, and the trading system is broken, largely because of them.”
Kudlow’s comments on the trade problems with China were echoed by Senator Lindsey Gra-ham on the Fox Business Network. He said that working through the World Trade Organization doesn’t help when it comes to trying to deal with China’s bad behavior. “The European Union, Japan, all these nations are being affected by unfair Chinese trade practices,” Graham said. “Here’s how this ends. Get a deal with Europe. . .
“Let’s go to zero [tariffs with Europe] as soon as we can, get rid of these subsidies, reunite and reform the WTO and tell China if you want to stay in the WTO, we’re going to have new rules you have to abide by. Either kick them out or we get out. One of the two, because the WTO is not working,” Graham recommended.
A PROBLEM TRUMP INHERITED
“This is a tough, hard thing to do. You know, people say, well, President Trump’s tariffs are damaging this, that and the other thing. I say, don’t blame President Trump. He inherited a completely broken world trading system, including a World Trade organization, most particu-larly China, but not only China.”
Kudlow said that no previous US president of either party has “pushed the way [Trump] is pushing” to reform international trade. “He’s trying to fix it. . . “If we can work these things out and improve the trading system, it will be to the benefit of the United States economy, our ex-ports, our farmers, our industry, and, by the way, will probably help the rest of the world too.”
The Associated Press contributed to this article.