Trump Economy Beats Expectations

Unexpected high-growth in US should make critics think twice

Workers at the Hollywood Bed Frame Company attend an event to mark the company's upcoming expansion, which will double the manufacturer's workforce, adding 100 new local jobs at the company's factory in Commerce, Calif., on April 14, 2017. Robyn Beck/AFP/Getty Images

U.S. GDP growth surged to 3.2 percent in the first quarter of 2019, beating the experts’ estimates of a 2.3 percent. It’s the best first quarter performance since 2015, despite the 35-day shutdown of the U.S. government, the longest in American history. The first 25 days of the year the federal government was literally out of business, and yet by comparison, U.S. economic growth was just 2 percent in the first quarter of 2018.

What does the economy’s stellar first quarter performance of 2019 tell us about consumer sentiment, wages, tariffs on Chinese imports, and an economic slowdown in China and Europe? Quite a lot, actually.

Consumer Spending Leads the Way

Leading the charge was consumer spending. According to the Bureau of Economic Analysis, the rising GDP “reflected positive contributions from personal consumption expenditures private inventory investment, exports, state and local government spending, and nonresidential fixed investment.”

In short, the growth was led by consumers making more money and spending more money, driving businesses to add more inventory.

That’s a natural outcome when wages are rising relative to consumer price inflation, of which there was virtually none. The laws of supply and demand are powerful forces, as is consumer sentiment. As the economy grows and unemployment falls, demand for labor rises, and so the price of labor (wages) rises as well. As wages rise relative to prices, people feel better about their future and spend more.

Even with the nearly month-long government shutdown and a fall in U.S. oil exports, the economy still grew. What’s more, oil prices, which are typically excluded from the cost of living calculation, dropped rapidly. This is because of the explosion of supply on the world market. Despite Venezuela’s dwindling oil production and Trump’s escalation of sanctions on Iran that have slowed Iranian oil exports to a trickle, thanks to America’s shale oil production, the world’s oil supplies are greater than ever.

Imports from China Falling Fast

Another key set of statistics are import data. U.S. imports from China for January 2019 fell the fastest since at least January of 2002. With Trump’s tariff on Chinese goods, that was to be expected.

The top five most impacted imports were:

• cellphones and related equipment - down over 31 percent
• computer parts - down over 63 percent
• computer imports – down over 11 percent
• video game consoles – down 52 percent
• aluminum plates – down over 80 percent

Will American producers benefit from the void created by tariffs against Chinese manufacturers?  That’s hard to say with certainty at the moment. But other cheap labor nations in Asia as well as Mexico are seeing manufacturing shift to their countries.

It’s a similar story with U.S. exports to China. In January, America exported 27.46 percent less to China in a record month for U.S. exporting. A major part of that decline was a 100 percent drop in oil exports. And yet, the U.S. economy continues to expand.

China Feeling the Pain

China’s economy, on the other hand, continues to slow. It’s been 19 months since Trump launched his trade war retalition against China, and they’re feeling the pain. In contrast to the stellar numbers of the U.S. GDP growth, China’s 2019 first quarter growth is reported to be 6.2 percent, the weakest first quarter performance since 1992.

And even this low number is likely inflated by up to 30 percent. Passenger car sales, a major indicator in China’s consumer economy, were 17 percent lower in January 2019 from a year earlier. That’s the biggest drop in seven years and last year saw the first contraction in the China’s car market in two decades.

Chinese economists worry that these facts point to a fundamental shift in China’s consumer trends and the Chinese economy as a whole. Their response? Take a page from Trump’s playbook. President Xi is cutting taxes, expanding lending opportunities and adding money to the Chinese economy in an attempt to revitalize it. The trend, however, is not in their favor.

Rest of the World Will Ride Trump’s Economy

The Eurozone economic outlook is somber. Like China, the Eurozone economic trend is remarkable only in its mediocrity. The political uncertainty of Brexit darkens business climate, as does the onerous regulations, automobile tariffs, and the declining economic outlook going forward. Growth is expected to be a meager 1.3 percent in 2019, a 0.1 drop compared to expectations from only one month earlier.

Still, the Eurozone may well get a lift from the U.S. economic growth despite their antipathy to Trump. With tariffs on Chinese goods in place, and more potentially on the horizon, U.S. imports from the Eurozone should increase. In January, America imported more from the world than ever before.

But it’s not just Europe that will benefit from the strength of the U.S. economy; much of the world will, too. With China’s continued slowing, American consumer demand will pull much of the world’s economies in the right direction.

Of course, it’s important to keep in mind that economies are fluid and complex systems; what’s true today may not be tomorrow. Economies are influenced by policies and political considerations, natural and human-caused events, as well as rational expectations and some irrational ones. But when some of the best economic minds are so wrong, it becomes clear that economists who oppose Trump are also subject to their own biases and misconceptions.

That goes for political leaders, too. One of the basic differences between Trump and his opponents on the left, whether in the United States, Europe or China, is that Trump understands and respects the laws of economics and the fundamental idea that a free people produce more, not less. He also knows that when basic economic rules are broken or ignored, eventually, it’s the economy that ends up breaking, regardless of how much political power one may wield. One day, even Trump’s opponent’s will come to realize this.

James Gorrie is a writer based in Texas. He is the author of “The China Crisis.”

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.