Trump's tariffs are keeping the US out of a recession

The rest of the world is experiencing an economic slowdown.  The graph below shows the world's 12 largest economies.  According to statistics for the most recent economic quarter, the only two currently growing faster than a 1% annual rate are the United States and China.  And the United States grew faster than China.

The United States is currently experiencing the longest economic expansion in American history, and Federal Reserve chairman Jerome Powell expects that expansion to continue.  In Zurich on Friday, he began a speech by stating:

The United States economy has continued to perform well and is in a good place. In fact, we're well into the eleventh year of this expansion which began back in the second half of 2009. It's now the longest such expansion since we began keeping reliable records. And the most likely outlook for our economy remains a favorable one with moderate growth, a strong labor market, and inflation moving back up close to our 2% goal. All that said, there are significant risks, and we've been monitoring those, including ... slowing global growth, uncertainty around trade policy, and also persistently low inflation.

The credit for the U.S. expansion in face of slowing global growth largely goes to Trump's policies, especially: (1) his reductions in business regulations, (2) his business tax cuts and, (3) his trade policies which have striven to bring down the U.S. trade deficits.

Trump's trade policies are working because he understands that the correct response to mercantilism and imbalanced trade from China and other competitors is to insist upon balanced deals, and to force balance through tariffs if they won't play fair.

Trump's administration has already negotiated three good trade agreements:

  1. Mexico and Canada.  The USMCA, Trump's replacement for NAFTA, if brought up and passed by the Democrat-controlled U.S. House, would greatly increase (to 75%) the North American–made content of cars, producing a huge boom in the U.S. auto parts industry.  It would also open the Canadian market to U.S. dairy products.
  2. South Korea.  The renegotiated Korea-U.S. Trade Agreement has already greatly increased U.S. agricultural exports to South Korea, reducing the U.S. trade deficit in goods and services with that country from $16.7 billion in 2016 to $7.4 billion in 2018.
  3. Japan.  The upcoming Japan-U.S. trade agreement (an agreement in principle was announced in late August) will greatly increase U.S. agricultural exports to Japan.

Trump is currently focusing upon rebalancing our trade with China.  Either a trade agreement or his ever-increasing tariffs will force a more balanced trading relationship.  If he succeeds at bringing our trade with China all the way to balance, the U.S. growth rate would increase by a half percent per year.

Soon he will target the United States' imbalanced trade relationship with Europe, resulting from the large number of European-produced automobiles being imported into the United States without enough European purchases of U.S. products to cover the cost. U.S. economic growth will increase dramatically when European automobile producers build new factories in the United States or Europeans buy more U.S. goods and services.

Ultimately, Trump's policies will also be good for global growth.  Imbalanced trade eventually produces worldwide recessions, as happened in 1873, 1930, and 2008, because trade deficit countries cannot keep borrowing more and more to buy imports.  In contrast, balanced trade can grow forever.

Tariffs, threatened tariffs, and balanced trade agreements are a key to the growth of trade deficit countries.  They encourage businesses to build new factories, employing construction workers, tool-makers, and production workers.  Those new factories increase production and help balance trade, increasing economic growth.  Trump has already helped produce the longest economic expansion in American history, and, due to his continuing progress on trade, that expansion is likely to continue.

The Richmans co-authored the 2014 book Balanced Trade, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.

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