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Economic report touts Trump policies, but some experts question their impact


President Donald Trump arrives to speak at a campaign rally at Veterans Memorial Coliseum, Wednesday, Feb. 19, 2020, in Phoenix. (AP Photo/Evan Vucci)
President Donald Trump arrives to speak at a campaign rally at Veterans Memorial Coliseum, Wednesday, Feb. 19, 2020, in Phoenix. (AP Photo/Evan Vucci)
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The Trump administration continued to press its case that the economic expansion of the last three years represents a drastic shift from the gradual recovery seen under President Barack Obama in a new report that presents an optimistic, but perhaps unrealistic, outlook for continued growth if President Donald Trump remains in office.

The 2020 Economic Report of the President, required by law to be submitted to Congress annually, contrasts data on jobs, wages, and economic growth since 2017 with projections made by experts in 2016, arguing President Trump’s policies are directly responsible for an economy that has “shattered” expectations.

“The current economy is not a continuation of the expansion after the Great Recession,” Tomas Philipson, acting chairman of the White House Council of Economic Advisers, told reporters during a briefing Thursday.

He pointed to analyses by the Obama CEA and the Congressional Budget Office in 2016 that foresaw gross domestic product growth and monthly job growth declining under the next administration. With unemployment now at a 50-year low, wages rising, and millions of workers rejoining the labor force, the Trump White House maintains it can continue to subvert predictions of doom and recession by staying the course Trump plotted during his first three years in the Oval Office.

“These results did not come about by accident. Instead, they were supported by our foundational pillars for economic growth that put Americans first, including tax cuts, deregulation, energy independence, and trade renegotiation,” President Trump said in a letter to Congress accompanying the report.

As the president’s battle for reelection heats up, the report offers many data points to bolster his stewardship of the economy, which is shaping up to be one of his strongest talking points. According to Gallup, Trump’s approval rating on the economy has hit 63%, the highest of any president since 2001, while voters remain more divided on his handling of other top issues.

“The growth that we’ve seen in the Trump economy has been very inclusive,” Philipson said, pointing to wage gains for historically disadvantaged demographics like African Americans and workers without college degrees outpacing those who typically earn more. Since 2017, the bottom 10% of earners are seeing wages rise faster than the top 10%.

The White House points to the 2017 Tax Cuts and Jobs Act as the “foundational policy” driving job creation. It also claims regulations cut by the administration will save American households $3,100 a year and takes credit for the U.S. becoming a net exporter of natural gas and crude oil.

According to Stan Veuger, a resident scholar at the American Enterprise Institute, aspects of the economy have grown stronger under Trump—employment, wages, savings—but the overall growth path has held constant. As a result, he is skeptical of the assertion that President Trump’s economic policies have had such a revolutionary impact.

“The tax cuts delivered a fiscal stimulus that temporarily raised growth rates,” Veuger said. “It’s hard to argue that the other stuff has done much, as we’re still at around 2% growth. Energy independence was well in the works before 2016, and the trade negotiations have been harmful—offset by stimulus, bailouts for farmers, and looser monetary policy than we would have otherwise seen.”

The report was finalized weeks ago, according to Philipson, but it still reads at times like an extension of President Trump’s Twitter rant earlier this week accusing President Obama of a “con job” for taking credit for the nation’s recovery from the Great Recession.

President Obama marked the anniversary of the 2009 signing of the $800 billion stimulus package with a tweet claiming the legislation paved the way for “more than a decade of economic growth and the longest streak of job creation in American history.” Trump responded by declaring Obama oversaw “the WEAKEST recovery since the Great Depression.”

Both of those claims are, to some extent, true. Annualized GDP growth under Obama was slower than in past recoveries, but the current recovery has been sustained over a longer period of time. GDP and job growth have not accelerated much since Trump took office, but the numbers are still notably better than the Obama White House projected in 2016.

Speaking to reporters Thursday, Philipson did not dispute that GDP and job growth have stayed relatively steady compared to the final three years of the Obama administration. However, he stressed creating jobs and spurring growth seven to 10 years into a recovery is more difficult than doing so earlier in the cycle.

“It’s much harder to grow jobs when everyone has a job,” he said.

While the president’s advisers spend much of the 440 pages touting the positive effects of Trump’s policies, they also acknowledge some drag on the economy due to his approach to trade, at least in the short term. Trump has aggressively imposed tariffs on America’s top trading partners and rivals as he seeks new trade agreements to make up for what he claims have been decades of the rest of the world taking advantage of the U.S.

Those actions have brought uncertainty, disrupted supply chains, and imposed steep costs on American consumers. Now that Trump has renegotiated deals with Mexico, Canada, China, South Korea, and Japan with varying degrees of success, such effects may be dampened in the future, but other tariff threats and trade tensions remain.

“Negotiations over a new agreement necessitate a degree of uncertainty over how that agreement will be shaped, exacerbating near-term costs,” the report states. “However, achieving a new trade relationship with China that is balanced and reciprocal will deliver long-term economic benefits for the United States, including a reduction in near-term costs.”

Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics and former Treasury Department official, credited the report’s authors for “a tepid recognition that the trade wars undercut the economic growth that the U.S. otherwise would have enjoyed in 2019 thanks to the big tax cut and the very low interest rates.” Still, he added that the CEA appears to downplay the role of U.S. trade policy, blaming other global factors as well.

The report also pushes back against calls from Democrats to reform antitrust rules to prevent tech companies from expanding their influence. It cautions against using antitrust policy to “punish firms for their competitive success” and argues the growth of these companies leads to lower costs for consumers.

“The increasing size of many of the Nation’s largest companies and the growing importance of economies of scale has led some to hold the mistaken, simplistic view that ‘Big Is Bad,’” the report states. “Though anticompetitive behavior by companies of any size should lead to investigations and specific enforcement actions against offenders, an across-the-board backlash against large companies simply because of their size is unwarranted.”

Though short of the 4% to 5% growth President Trump and other officials have publicly promised at times, the CEA projections for growth above or near 3% for the next decade exceed many nonpartisan analyses, in part because they assume full implementation of the president’s policy agenda. That includes policies proposed in 2018 and 2019, as well as the fiscal year 2021 budget the White House released last week.

According to Philipson, that is standard practice for these reports. However, the likelihood of enacting a massive infrastructure package, another round of tax cuts, immigration reform, and numerous other politically volatile priorities is low, especially in an election year. Without implementing Trump’s proposals, the White House estimates growth closer to 2% in the years ahead, which is more in line with independent analyses.

“I thought this was surprisingly candid because the growth projections in the report in the absence of other stimulation measures are realistic,” Hufbauer said, adding many of Trump’s big ticket agenda items will be difficult to pass even if he is reelected for a second term unless Republicans also manage to take back the House.

Because the report’s analysis was completed before the coronavirus outbreak, it does not account for the potential economic impact of the disease. Larry Kudlow, director of Trump’s National Economic Council, has estimated the repercussions of the outbreak could drive down GDP by 0.2% to 0.3% in the first quarter of 2020.

“Basically, the administration is taking a bit of a wait-and-see in terms of the economic analysis,” Philipson said Thursday.

The report highlights some other possible risks to its rosy fiscal projections, though. One is action by a future administration or Congress to roll back Trump’s policies. Another is a possible slowdown of the global economy or the Chinese economy that would directly or indirectly hinder U.S. growth.

One factor that is largely discounted by the CEA is the federal deficit, which is expected to exceed $1 trillion in 2020 and remain above that level for years to come. Philipson blamed the nation’s ballooning debt on Congress, but other experts say running deficits this high during an expansion carries severe long-term risks for the economy.

“The deficits we’re running are bizarre given that we are at full employment,” Veuger said. “It’s twice the size of Italy’s as a share of GDP.”

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