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ECONOMY

U.S. economy regaining shine

U.S. President Donald Trump, an advocate of a “Make America Great Again” policy, will celebrate his first year anniversary. On the heels of his victory in the presidential election, the Dow Jones Industrial Average soared, and it has now climbed 38%. The rate of increase in stock prices he saw in the year since he was elected to office was the second largest in U.S. history, following President Franklin Roosevelt, who carried out the New Deal measures in times of the Great Depression period.

 

The latest stock gains are supported by a drastic policy turnaround in the economy and the economic recovery that it has brought about. So the view that a market bubble plays a part is not correct. President Trump’s economic policies are simple and straightforward.

 

They are aimed at lifting the economy via a substantial tax cut, investments in infrastructure projects and energy development; reducing trade deficits by tempering the strong dollar, facilitating U.S.-bound investment and reviewing trade policies; motivating people by easing regulations and putting the economy back on track by expanding capital spending and employment. These policies are easy for the public to understand.

 

The results are becoming visible. First, exports are expanding. Over the last five years, exports stagnated as the value of the dollar climbed over 40%. But the dollar dropped about 11% from its high registered two years ago, breathing life back into exports. Furthermore, increased shale production has turned the U.S. into the world’s largest oil producer. The expansion of oil shipments also contributed to push U.S. exports, which grew 6% on the year in the eleven months through November last year. With the midterm election scheduled to take place this year, trade deficits will shrink if the U.S. manages to prevent imports from China and Mexico from further growing in its trade talks with these countries.

 

Second, U.S.-bound investments are on the rise. Foreign direct investment in the U.S. dropped since the onset of the global financial crisis, but the situation has turned around since the January-March quarter in 2017. U.S.-bound FDI soared 78% on the year in the nine months through September. Simultaneously, capital spending has improved and the manufacturing industry began increasing jobs.

 

Third, productivity has turned into an uptrend. Lower productivity has long been  perceived as the cause of the protracted stagnation of the U.S. economy, but output per hour has been improving since the April-June quarter last year and rose 4% in the July-September period. Wages are also on the rise, which is beginning to stimulate personal spending. Fourth, the supply-demand gap was closed in the July-September period last year. In September, the rate of increase in consumer price index recovered to the 2% range.

 

At the end of last year, a taxation reform bill was enacted for the first time in about 30 years. Over the next five years, tax reductions worth an average of 1% of gross domestic product will be in place. The prospects for the U.S. economy will be further brightened. The U.S. will likely register the longest economic expansion in history in July 2019. This may put a halt to the decline in the U.S. share of the global GDP.

 

The “America First” policy is not well-received in the world. However, the U.S. economy is now regaining shine on the back of those drastic policies. This fact should not be underestimated.

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