For the last seven years, the U.S. economy has plugged along at a meager two percent growth rate. When that rate is compared to India’s and China’s economic growth, the U.S. is not even in the ball game. India and China’s economic growth rate is in the six to eight percent category. But the Trump administration thinks maintaining a 2.3 percent rate is good news. But something isn’t adding up, according to some economists. The unemployment rate in the U.S. is 3.9 percent, so more Americans are working, but the GDP output is not increasing. Trump wants a three percent growth rate, and according to investor Warren Buffett, he may already have his three percent economic growth rate.
Mr. Buffet said the economy grew by 2.9 percent in the fourth quarter of 2017. And he thinks U.S. economic growth now equals or surpasses that growth. But Buffett also said there is no way to tell what the growth percentage is, according to a Reuters article. But the president’s tax cut should help increase economic growth, according to Buffett.
The current 2.3 growth rate that the Commerce Department released last week is not what Trump was expecting. But the president believes his $1.5 trillion income tax package will do the trick once people start spending the money they are getting back from the government. That sounds like it could work if consumers spend the money instead of saving it. But Buffet feels comfortable talking about positive growth even though Trump is on the verge of starting a trade war that could negatively impact U.S. economic growth.
The plan by President Donald Trump to impose tariffs on certain imported products has raised concerns beyond the fear that such a policy could increase costs for American businesses and consumers. One economic observer believes that a “trade war” could reduce foreign investments, resulting in even more serious consequences for the U.S. economy.
Susan Aaronson, a professor of international affairs at George Washington University and an expert on trade policy, expressed the belief that such a policy could weaken the image of the United States as a reliable trading partner and thus a good place to make an investment. This is significant when considering that foreign businesses or organizations comprise approximately one-third of the investors in the American stock market. Additionally, about the same number of foreign entities own American treasury bonds, which are used to finance the American government and its many services.
In a theory outlined by Aaronson, foreign investors may turn against the United States for the imposition of tariffs and retaliate by discarding the bonds they have purchased. The result could be a dramatic increase in the cost of borrowing, with the effects falling on the U.S. government, corporations and even American citizens. Learn more about the possible consequences of a “trade war” at www.reddit.com/r/Economics.
According to Aaronson, the main resistance might come from America’s closest trading partners, including Canada, the European Union and Japan. When recommending the imposition of tariffs, Aaronson said that American leaders should first consider who will benefit and who will be harmed by the policy.
The expectations for January job growth numbers were actually lower than what the real number turned out to be. As a matter of fact, the 200,000 jobs added in January was a strong enough month to bring the unemployment rate down just a nudge more. Even so, the market is not necessarily taking the news as some might expect.
Trading has been down in the triple digits the last few days. As of the time of this writing, the Dow Jones Industrial Average is down roughly another 250 points according to CNBC. This is despite all of the supposedly good news that has been out related to the economy as of late. It is perplexing to a lot of people to say the least, but others see it as an obvious sign that prices in the market have been too high for a long time.
The market has a funny way of deciding to go up or down when people least expect it. They always say that it is best to buy when everyone is fearful and sell when they are greedy. As of late it feels like greed has indeed taken over the market. Perhaps this is why people are starting to pull back on the investments that they had previous made without question.
It is a market that we all have to keep an eye on at this point. There could be more twists and turns to come.