The US and global economies are at a crossroads - which fork will they take?
The US economy, along with the global economy, has been doing well this year. In fact, the US GDP growth numbers to be announced by the US Bureau of Economic Analysis (BEA) on Friday should approach 4% or more, the highest since 2014. President Trump’s tax plan (aka the “Tax Cuts and Jobs Act”) enacted late last year is likely the primary cause of this growth for two reasons: 1) significantly reduced business tax rates, which allows corporations to reallocate funds for additional investment or growth, and 2) slightly lower personal income taxes, which provides consumers additional funds to allocate to personal consumption (should they so choose).
Meanwhile, global GDP growth is also higher, and expected to peak this year (or next) at close to 4%. So where is the issue? Trouble is brewing in the area of global trade and related industries. China’s economy is already slowing down, and the trade war initiated by President Trump could further curtail growth. Foreign direct investment has also been impacted, as investors pull back to the sidelines and await the results of the ongoing tit-for-tat tariff maneuvering.
Where will this all lead? We seem to be at a crossroads. Will the political brinkmanship continue, while each threat after counter-threat increases uncertainty and slowly affects the momentum of the global economy? Or will the flurry of tweets and statements be revealed as the bluster of a negotiation tactic, only to be discarded when its aims are achieved? Time will tell which path is followed; however, consider this: one of the strongest countermeasures to tariffs are currency manipulation, and China’s currency was just devalued by almost 5%.