With the State visit due next week as the last official appointment of Theresa May as PM, we look at how the US economy is fairing under President Trump’s policies.
On the face of it, Donald Trump has been good for the US economy. The leading economic indicators suggest that the economy is doing well. It has steady rather than spectacular growth, with 3.2% annualised GDP growth in the first quarter of this year, more manufacturing and farming jobs, with unemployment just 3.6% in April and inflation running at a mere 2%.
It has been called a Goldilocks economy because it’s neither too hot nor too cold, but just right for steady growth. Current statistical models suggest 2.43% for the current quarter, falling to a steady figure a little below 2% for the next few years.
Is the thriving economy down to Donald Trump?
Whatever you might think about the man, his election campaign was certainly well judged. His election victory was secured by promise to revitalise a US economy that was failing many blue-collar voters. He pledged to Make America Great Again, creating jobs, reducing restrictions on the exploitation of energy reserves, and setting up protectionist policies.
Trump’s initial plans looked to spur US economic growth and boost its export potential and industrial capacity. Recent figures suggest that it is working. Retail sales were up 3.1% in April.
However, although he may claim to have brought the economic boom, his critics argue that it was coming anyway, the result of recovery that began during the Obama years. Business investment might be reaping stored-up demand as confidence returns and consumers and businesses are buying again.
The international stage
But the president’s commitment to the domestic economy has come at a price. Isolationism was at the core of the Make America Great Again manifesto. During his campaign to be president, he regularly cited China’s export subsidies as “evil”, and in his manifesto pledged to cut a better deal with China to help American businesses and workers compete. Imposing tariffs on trade with China has delivered on this promise. But the policies did not stop there. Last year, the US started charging levies on the imports of steel and aluminium from key allies including the EU.
The EU imposed retaliatory tariffs on US products such as bourbon, motorcycles and orange juice. The US has been threatening further tariffs since April.
It is a recurrent theme of US history. Abraham Lincoln raised tariffs during the civil war, and for much of the 19th century the US trade barriers were a major driver of industrialisation. By the first world war, the US had the highest trade barriers of any leading country apart from Russia.
But this is the 21st century, and the world works very differently. The boost from protectionism may be real, but if it means problems for global trade, it could have serious consequences for the US.
Economists believe US growth and China’s economy will suffer, and point to falls in April that run counter both to the trend for expansion, and to seasonal growth predictions. It is not just the loss of profitable markets. Manufacturers have seen raw materials and production costs going up as a result.
Will the UK be caught in the crossfire?
The apparently reckless approach may be carefully calculated. Trump is a dealmaker, and not averse to making threats to prepare the way to a negotiated solution.
But what about closer to home? Will Trump’s trade wars hit the UK?
The UK’s import-heavy economy is more resilient to the impact of tariffs than countries such as China and Germany, which export more than they import. But there are exceptions – some sectors, such as steel which is already under pressure because of Brexit, may be badly affected.
Of course, the State visit might conceivably bring some good news from the US – but with economic strife threatening, it may be time to take a careful look at global trade in general, and US investments in particular.
To see what they might mean to your portfolio, get some expert help from the Continuum team.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Photo – Gage Skidmore® flickr.com/photos/gageskidmore/