President Trump claimed that his economic policies would lead to sustained economic growth of at least 3% annually for each of ten years. That promise looks to be something of a fairy tale, given the newly released economic growth estimates from the Congressional Budget Office (CBO). The CBO revised several of their previous estimates, with downturns in each. And, reading between the lines, it’s clear that Trump’s tariffs have a role in that downturn.
First, the CBO predicts that 2018 will be the only year of the ten where economic growth will actually be above 3%, but even that was downgraded to an estimate of 3.1%, as opposed to the 3.3% predicted in April. The large second quarter growth of 4.1% will not be repeated in the third or fourth quarter of this year, the CBO estimates, with their report indicating, according to The Hill, “Such moderation occurs because several factors that boosted second-quarter growth — including a rebound in the growth of consumer spending from a weak first quarter and a surge in agricultural exports — are expected to either fade or reverse.” Let’s stop to consider why that second quarter “surge in agricultural exports” is “expected to either fade or reverse”. Clearly Trump’s tariffs, and the retaliatory tariffs countries have issued in response to those tariffs, are playing a major role in the reduction of agricultural exports. Even Trump acknowledges this, while promising a better day in the offing, with the $12 billion in aid he plans to give to farmers to compensate partially for the loss of export revenue. Of course the farmers wouldn’t need that aid if not for Trump’s tariffs, and would prefer a free market prevail instead.
The real downturn, according to CBO estimates, starts next year, when lower than 3% growth is expected for each of the next 10 years, even dipping below 2% already by 2020. According to The Hill:
“In 2019, the pace of GDP growth slows to 2.4 percent in the agency’s forecast as growth in business investment and government purchases slows,” the report said. The CBO also ticked down its estimate of how fast the economy will grow in the latter half of the upcoming decade. While the April estimate projected growth of 1.7 percent from from 2020-2026 and 1.8 percent on average in 2027 and 2028, the new update estimates that growth would drop to 1.6 percent in 2021 and 2022 and remain at 1.7 percent from 2023-2028.
Of course one of the key problems here is that Trump also claimed that sustained economic growth would be able to make up for the lost revenue due to Trump’s tax plan, where tax revenue from corporations in particular has decreased substantially. Even with this year’s 3+% growth, the deficit is escalating, growing by 20% in just the first 10 months of the current fiscal year. So it would take more growth than that 3% promise to offset the lost revenue. Moreover, these estimates from the CBO predict that growth will be significantly below 3% starting next year all the way through 2028. The overall debt owed by the United States is now in excess of $21.3 trillion, and interest payments to service that debt are enormous and growing all the time – the CBO predicts that within 30 years, the U.S. will be spending more to service that debt than on either Social Security or Defense.
Here it would not be hyperbole to suggest that the six business bankruptcies Donald Trump had prior to his taking office show Trump is not the keen economic thinker he imagines himself to be. He makes promises (e.g., 3+% growth every year for ten years, enough economic growth to compensate for lost tax revenue) without the support of facts – the promises seem to come from a place of what he wishes to be true, rather than from a prediction supported by evidence. The CBO, however, is making their predictions based on available evidence, and surprise, surprise, that reality turns out not to be anywhere near as rosy as Trump’s predictions.