Trump’s economic delusions: Why the current boom won’t last

A few days ago, Trump gave a press conference regarding the state of America’s economy. He announced that American GDP had expanded by an annualised rate of 4.1%. This, along with a range of figures including a low unemployment rate and decent wage growth, seemed impressive. Trump predictably credited the economic buoyancy to his policies like environmental deregulation and tax cuts. Democrats, equally predictably, retorted that Trump was benefiting from Obama’s sound management. The fundamentals have changed little since Trump took office.

The reality is that the current boom won’t last. Partly because such high growth will incline the Fed to raise interest rates, putting a dampener on growth. Quantitive easing and federal bond-buying will be phased out. The global economy is slowing, which will affect the US sooner or later, even if its performance is high by developed world standards.

More importantly, Trump’s policies won’t do anything to boost growth in the long term, and in some cases will reduce it. For manufacturers, the effects of Trump’s tariffs and a potential trade war with China could more than offset any gains made by corporate tax reductions. Even for the rest of the economy, the tax cuts were a one-time affair. We are experiencing a bounce in growth as a result of them, but it will die down soon. On the other hand, the deficit-increasing nature of the tax cuts will harm America’s long term prospects, as debt interest payments increase and the markets lose their confidence. Running a high deficit during a boom will lessen the country’s ability to stimulate the economy when the next crisis hits. Additionally, America already has amongst the lowest tax burden of any developed country, even lower than Switzerland as a proportion of GDP. So its unlikely the tax cuts will significantly increase America’s competitiveness, particularly if infrastructure projects are cut to prevent the deficit from spiralling out of control.

Perhaps what’s most important is the impact of the Trump economy on the ordinary person. If you’re a company with a lot of offshore money, the tax cuts have been pretty good. But there’s very little evidence to suggest that this has resulted in higher wages for most Americans. Instead, income inequality, which is already the highest of any major developed country, is projected to increase further as a result of Trump’s reforms. While Wall Street celebrates the current boom, most people’s lives simply carry on as normal. And while I don’t believe the success of big business and finance is inherently bad, it isn’t a good barometer for how the country as a whole is doing. Conservatives love to talk of the importance of social cohesion, and rightfully so. Yet as far as their economic policies are concerned, they will create an America less cohesive than at any point since the Gilded Age. Just remember that the next time you hear of how well Trump’s America is doing.

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