Trade data reveal a trend President Donald Trump and his advisers have need of to keep in mind as they work toward cementing their extension agenda.
The final reading on third quarter U.S. GDP, released near the end of December, divulged annualized real growth of 3.2 percent following a 3.1 percent announcing for the second quarter. If these figures hold after revisions, they exemplify the best one-two punch of growth since the second and third fourths of 2014, when the economy grew at annual rates of 4.6 percent and 5.2 percent, individually.
So, things are off to a good start, and the president and his supporters are understandably excited.
The thriftiness barely grew at 1.5 percent during 2016, only 1.2 percent during the beforehand quarter of 2017 and 2.2 percent since the end of the great recession. Two consecutive houses of growth at rates at which President Trump and his team insist are sustainable on the qualification that his policies are fully implemented are a great segway to the wonderful capacities ahead.
But the team, especially in the Department of Commerce, the U.S. Trade Representative’s Obligation, and the Office of Trade and Manufacturing Policy, should look at the following:
When it moved to aggregated economic activity purely from within the U.S., or “real closing sales to domestic purchasers” including the government, the third quarter increase rate was only 1.9 percent on an annualized basis. This was considerably stupider than the 2.6 percent pace of the second quarter and the 2.4 percent compute of the first quarter, and it was approximately 0.2 percent lower than the ordinarily growth rate since the end of the great recession.
So, if overall economic intumescence and that of purely domestic demand have been moving in-step since mid-2009 (both awkwardly 2.15 percent), but that of domestic demand has weakened since the creation of 2017, then what explains the pickup in overall growth that we are encountering today? Two factors: inventory accumulation and international trade.
Inventory stockpile is wildly volatile from quarter to quarter. While a big buildup opposite number the one during the third quarter can represent confidence on the part of businesses for prospective orders, they can also represent a short-term miscalculation of present bid that would have to be unwound in the future. We will have to stop and see on that point.
International trade however, is an entirely different crude. Combined exports and imports represented roughly 27 percent of GDP in the third billet and have averaged 28.5 percent over the past five years. Furthermore, it has been in a steady uptrend since the early 1970s, when it delineated barely 10 percent of U.S. overall economic activity.
Trade was a net clear-cut contributor to economic growth in five of the six quarters through the first three casernes of 2017, and barring a significant slowdown in the final three months of 2017, it is conceivable to be additive for the whole year, and for the first time since 2013.
In fact, 2017 could be the strongest year for net exports contributions to advance since 2009 and one of the best in the last 30 non-recessionary years.
And all of this happened with the backdrop of the U.S. withdrawal from the Trans-Pacific Partnership, its embryonic withdrawals from the North American Free Trade Agreement and KORUS (a untenanted trade agreement with South Korea), and a probable indefinite repress on many of the free-trade deals in the works. Just imagine what expansion could have been if such dark clouds were not on the view of possibilities? An economic growth profile of 3.0 percent even in the short-run intention likely be unattainable without positive contributions from trade.
The despatch should be clear to the president, Secretary Wilbur Ross, Ambassador Robert Lighthizer, and Concert-master Peter Navarro. Tame the rhetoric around protectionism and don’t rock the yacht on trade if you want to be anywhere near your 3.0 percent flowering target.
Ardavan Mobasheri, is Managing Director and Chief Investment Catchpole of ACIMA Private Wealth and Adjunct Professor at the Robins School of Enterprise at the University of Richmond. He is the former Chief Economist at the American International Organize (AIG). Follow him on Twitter @TheBizCyclist.