What 4 economists say about the state of the union

The Conversation

Originally Posted: January 30, 2019

This is an excerpt of a January 30 article from The Conversation. Read the full version here.

The State of the Union is back on after Speaker of the House Nancy Pelosi said she invited President Donald Trump to address Congress and the nation on Feb. 5.

Earlier, she had disinvited the president from giving the speech in the House on the scheduled date of Jan. 29.

While we await Trump’s address, we asked four economists to give us their own assessments of the state of the union, as well as the president’s performance so far. Each picked a theme

State of trade: Uncertainty and trade wars

James Lake, Southern Methodist University

American trade with the world is crucial to the U.S. economy, exceeding 25 percent of gross domestic product. But with uncertainty over tariffs, trade wars and trade agreements keeping U.S. businesses on their toes, the state of trade is in flux.

The raw numbers tell a mixed story. After increasing for six straight quarters, the brunt of strong foreign retaliation over Trump’s tariffs pushed U.S. exports down 1.24 percent in the third quarter of 2018, the latest data available. It’s the biggest fall since the depths of the Great Recession in 2009.

At the same time, imports jumped that quarter as U.S. companies wary of higher tariffs on Chinese goods stocked up. Imports from China surged11.1 percent, the most since 2011.

As a result, America’s trade deficit with the world – one of the president’s most-cited metrics and a reason he’s fighting his trade wars – widened to a 10-year high.

The Trump administration has spent the better part of the past yearescalating its war of words and tariffs with China, with tit-for-tat trade barriers being hurled back and forth. Trump’s tariffs on $200 billion of Chinese goods were set to ratchet up from 10 percent to 25 percent in January until he and Chinese President Xi Jinping agreed to a three-month truce to come to a deal. The deadline is March 1.

But rather than leading to Chinese concessions, Trump’s strong-arm negotiating tactics have led to a new suit this month against the U.S. at the World Trade Organization. And, despite continuing to push hard on Chinese telecom giant Huawei, there’s now talk that the Trump administration’s tariff stance may be softening.

All of this uncertainty together with the higher tariffs are starting to hurt markets as well as companies like U.S. manufacturing bellwether Caterpillar and iconic motorcycle maker Harley-Davidson.

Another major area of concern has been the renegotiation of the North American Free Trade Agreement, which lasted some 18 months and resulted in a deal that looked strikingly similar to the original. There were some modest changes for the dairy and auto industries, but by and large it was the same old agreement.

Nevertheless, Congress still needs to actually vote on the new deal, known as the U.S.-Mexico-Canada Agreement, and newly empowered Democrats are talking about reopening the deal to demand stronger labor and environmental protections.

And, unsurprisingly, Trump is once again threatening to withdraw from the pact altogether. So, more uncertainty ahead for U.S. business, workers and consumers. READ MORE

By | 2019-01-31T09:40:38-07:00 January 31st, 2019|Dedman College of Humanities and Sciences, Dedman College Research, Economics, Faculty News|Comments Off on What 4 economists say about the state of the union