PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Trade War and the Drag on the Economy

By at 7 October, 2019, 7:25 pm

by Raymond J. Keating-

In case you haven’t noticed, economic growth has continued to run at a below-average rate. Why? Mainly, the answer is trade – or, more specifically, increased governmental costs imposed and threatened on trade.

The latest GDP report noted that real economic growth slowed dramatically in the second quarter – from 3.1 percent in the first quarter 2019 to 2.0 percent in the second quarter.

The economy had a fairly nice stretch of growth from the third quarter 2017 into the third quarter of 2018. Real GDP growth averaged 3.1 percent during that period. That was still short of the 3.3 percent average growth rate in the post-World War II era (including recession years, by the way), but it was solid.

Subsequently, though, growth dropped to 1.1 percent in the fourth quarter 2018, and again, back up to 3.1 percent in the first quarter 2019, and slowing to 2.0 percent in the second quarter. That’s an average rate of 2.1 percent.

So, what’s notable in the data from these most recent quarters?  Trade.

GDP data show real growth in exports over these last three quarters averaged -0.03 percent, while the post-war average growth rate is 6.7 percent.

As for imports, growth averaged 0.7 percent over the past three quarters, compared to an average post-war rate of 7.1 percent.

The latest trade report for August from the U.S. Bureau of Economic Analysis showed no growth in either exports or imports over the past year. And exports in August were down notably from May 2018, and imports from October 2018.

For good measure, the recent slowdowns and declines in business investment measures in the GDP data (including an overall decline in fixed nonresidential investment in the second quarter 2019) also shouldn’t be surprising given the tariffs and uncertainty on trade being generated through the policies of the Trump administration. These are having real effects on business and investment confidence and outlook.

So, if you’re concerned about U.S. economic growth, it’s time to tune in to the very real negatives occurring on the trade front, namely, the U.S. being focused on raising barriers to trade rather than reducing such barriers.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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