When President Donald Trump declared in September his ambition of sustained US economic growth of between 3pc and 4pc per year, economists baulked.
A survey from the National Association for Business Economics found an overwhelming majority thought growth would slow by the end of this year, with significant headwinds thereafter from the effects of an ageing population. The Congressional Budget Office thought potential US GDP growth would slow to just 1.9pc per year.
The risks of trade wars started by renegotiating the North Atlantic Free Trade Agreement and abandoning the Trans‐Pacific Partnership, the potential for actual conflict with North Korea, and proposed clampdowns on immigration, would surely bring uncertainty that would dampen investment.
Well, the forecasters have been wrong, for now at least. Though the larger structural challenges remain, last week’s GDP numbers show the US growing at 3pc for the second quarter in a row. Business investment on new equipment increased at an 8.6pc annualised rate. The US unemployment rate has fallen to 4.2pc. All this before the Republicans have even delivered on their tax cut and reform package, which they are hopeful will slash the US federal corporate income tax rate from 35pc to 20pc, and lower marginal income tax rates too.
Sure, economic risks still exist. Only a fool would forecast sustained uninterrupted growth. But one shouldn’t write‐off the Donald’s chances of delivering the robust economic performance he promised.
After working its way through Congress the final tax package could change substantially. Free‐market critics are right that it seems a missed opportunity for broader, more substantial reform.
Nevertheless, should it be delivered, the economists Laurence Kotlikoff, Seth Benzell and Guillermo Lagarda estimate it alone could add between 3pc and 5pc to the level of GDP in the long‐term. This would translate into wage rises of between 4pc and 7pc.
Critics of course will claim that Trump cannot take credit for this recent uptick in economic performance, because he has not fundamentally altered economic policy.
Though big on rhetoric in his campaign, there has no been no major infrastructure push. Republican attempts to overturn Obamacare and its taxes and mandates failed. Even tax reform hasn’t happened yet. But business leaders do appear to truly believe that economic growth prospects have improved under the new president, and when looking at the administration’s paradigm shift on regulation compared with the Obama era, it’s easy to see why.
All the time the media is focused on the Russia investigation and what Trump is tweeting, the US executive and Congress are slowly undertaking the biggest assault on the regulatory state since Ronald Reagan, if not before him. There have been some major public actions, of course — pulling out of the Paris climate agreement was a big signal the Trump administration would prioritise growth. Just last week Congress repealed a host of regulations in relation to banks. The real revolution, however, is coming through a combination of inaction, repeal and the setting of frameworks for new regulation that could substantially curb the regulatory state.
Back in August the American Action Forum compared Donald Trump’s regulatory performance in his first 200 days as president to Barack Obama’s. Trump, they concluded, had “imposed: 1/20th of the lifetime costs, 1/11th of the annual costs, and 1/8th of the paperwork” through new regulations.
This week, the US Chamber of Commerce has tallied up Trump’s deregulatory actions, estimating that 29 executive orders straight from the president’s desk and 100 additional directives from government agencies have shrunk or eliminated regulatory requirements.
That’s before the efforts from the Republican‐controlled Congress. They have been using the Congressional Review Act, a vehicle to repeal recent regulations and rules announced by regulatory agencies, to vote their disapproval on rules which came in at the end of the Obama presidency. Trump has subsequently repealed 14 regulations, with another pending. In fact, some Republicans are even examining the prospect of using a loophole in the Act to review old regulations and guidance from years before for which no report was submitted to Congress.
For new regulations, Trump has implemented a “one‐in, two‐out” rule akin to something the government in the UK has done. The administration is also keen to introduce more stringent regulatory budgets. Even in areas where legislative activity has floundered, such as healthcare, Trump’s recent executive order gives guidance that could relax regulations to allow people to be able to obtain renewable short‐term insurance for far lower premiums than under Obamacare.
Individually, some of these actions are small fry. Others are more substantial. But the direction of travel is clear. Under Trump, there is an executive that believes in the power of supply‐side economics, that wants to lower marginal tax rates on work and investment, and that wants a permissive, light‐touch regulatory state.
To be sure, huge economic challenges remain. The US long‐term fiscal outlook is still dreadful, almost entirely due to unreformed entitlement programmes in the face of an ageing population.
A break up of NAFTA negotiations really could lead to lots of short‐term disruption. As with all economies on the technological frontier, the US economy in the coming decades could be transformed by artificial intelligence and new technologies with significant social consequences.
Yet political discourse is far less fatalistic in the US than in the UK about the ability for policy to improve matters. Trump is going to pull the levers of lower taxes and less regulation to try to pull the US economy back to higher growth in the coming years. And you’d be foolish to write him or America off.