U.S. can't afford to be complacent when it comes to economy
With the economy growing and unemployment low, Americans can perhaps be forgiven for a certain complacency about President Donald Trump's economic policies - especially his decisions to hit China and others with tariffs and to renegotiate the North American Free Trade Agreement linking the United States to Canada and Mexico. Complacency would nevertheless be a mistake: The continuing strength of the U.S. economy is occurring much more in spite of Trump's trade wars than because of them. And the threat they pose to the global economy, upon which U.S. prosperity depends, remains.
The latter point is clear from the International Monetary Fund's new economic forecast, published Tuesday, which predicts a deceleration in global growth, because of slowing global trade. Specifically, the IMF projects trade will grow only 2.5 percent this year, a markdown of nearly one percentage point from its forecast of 3.4 percent just three months ago. If the IMF's forecast comes to pass, it will represent a three-percentage-point drop in the rate of growth in global trade since 2017, Trump's first year in office.
To be sure, the same IMF report sees the U.S. growth rate coming in at 2.6 percent this year, significantly better than it expected in its April report. However, the report makes clear that the United States, and the world as a whole, would be doing still better without the cloud of uncertainty because of the Trump trade wars - and the lack of a Brexit resolution between Britain and Europe. Spending by households and firms is stalling, the report notes, as both "continue to hold back on long-range spending amid elevated policy uncertainty." The IMF report confirms two similar analyses published this year by the Organization for Economic Cooperation and Development and by the World Bank, both of which identified trade tensions as the biggest global economic concern.
The explosive growth of world trade that began with the rise of China was bound to cool somewhat; it reflected the creation of what is now a mature global supply chain. Unilateral U.S. tariffs, however, may be slowing it beyond what would have occurred naturally. The worst pain will be felt by the poorest countries, which have yet to receive their share of the poverty-reducing benefits that freer trade can bestow.
"Multilateral and national policy actions are vital to place global growth on a stronger footing," the IMF report notes. "The pressing needs include reducing trade and technology tensions and expeditiously resolving uncertainty around trade agreements," including the modified NAFTA that Trump has negotiated. Mexico has already ratified the deal, and Canada may move next. A GOP Senate would likely approve, too, which leaves the Democratic-controlled House as the main remaining obstacle. Democrats object that the deal does not guarantee labor rights in Mexico and also excessively protects U.S. drugmakers' pricing power.
The deal is, indeed, far from perfect - it's not even a free-trade deal, strictly speaking, because it creates new protections for the U.S. auto industry. Democrats are understandably loath to give Trump a political victory for essentially reassembling the status quo he shattered. Given the warnings from the IMF and others, though, the only thing worse than ratifying his deal might be rejecting it.