• Business

Was Trump really good for the American economy?

It's time to look

President Trump's time was apparently considered good for the American economy, but the tax cuts he made were not really necessary and contributed to the increase in the budget deficit to large proportions. In the trade wars he lost and growth in his time was lower than the ambitious target he presented and than in the Obama era.

Tags

• Donald Trump

Dr. Gil Michael Befman

Wednesday, 13 January 2021, 08:03

• Share on Facebook

• Share on WhatsApp

• Share on general

• Share on general

• Share on Twitter

• Share on Email

0 comments

• Biden: The terrorist rioters in Congress, Trump led ...

• 4 killed and 52 arrested in riots in Washington after ...

• Traffic congestion throughout the country following the placement of barriers to enforcement ...

• Audio Circles Association Project

• Ganz called for connections in the center-left bloc: "Ready to sacrifice ...

• Safe Walk Jerusalem project

• Tightening the third closure: increased enforcement and reducing crowds ...

• Towards closure: an increase in the number of buyers and the size of the shopping baskets ...

• Video of the angle of reduction of prints in offices

Trump: The impeachment process is causing a great deal of anger, but we do not want violence (Photo: Reuters)

The final chord of Donald Trump's tenure as President of the United States was unprecedented, as was the entire period of his presidency.

Trump will be remembered as one of the most controversial presidents to ever serve in the United States, but there seems to be a consensus on one thing, even among many of his staunchest opponents: President Trump's term was considered good for the US economy. The objective, the picture that emerges is more complex.The Trump era was certainly not bad for the economy, but also not really outstanding, even towards the end, in the corona periods, and even before the outbreak of the plague.

Israeli development

Free demo: The platform straightens out from the first step

To the full article

Overall growth during the Trump era: less than in the Obama era

The increase in US GDP and the decline in the unemployment rate in President Trump's first three years are impressive. From the beginning of his tenure until the peak of growth, in late 2019, US GDP rose in real terms by a cumulative 9.3%.

It can be argued, but it is difficult to prove, that the relatively strong growth, of about 3% per year on average until the end of 2019, was largely a continuation of the recovery trend from the Great Recession (2008-2009), a trend inherited from its predecessor, Barack Obama.

The deadliest public health epidemic in the last 100 years has severely affected economic activity in the last year of his tenure.

Against this background, GDP fell sharply in the first half of 2020, with a recovery in the second half.

President Trump also faced additional unforeseen problems such as fires, hurricanes and civil-social unrest that rose sharply in the second half of his tenure.

Based on an estimate of growth in the last quarter of 2020, it appears that growth, including the corona period, will amount to about 5% during President Trump’s tenure, i.e. only about 1.2% per year.

By comparison, during President Obama's term, GDP rose at an average annual rate of about 1.9 percent per year, a faster rate than during President Trump's overall tenure, about 1 percent, but lower than during the Trump era, excluding the coronation period. Of about 3%, less than the target that Trump talked about - 4% annual growth.

For the avoidance of doubt, President Obama's terms also included major global crises such as the financial crisis in China in late 2015 and 2016, a major debt crisis in Europe (and elsewhere in the world) in previous years and also the end of the major global economic crisis of 2008-2009.

That is, if periods begin to be deducted, and the corona period is deducted from the measurement, similar "assumptions" must be made to President Obama as well.

In the bottom line, the Trump era may have been characterized by relatively rapid growth, but less so in the Obama era and less than the target the president set for himself, even in the pre-Corona period.

There are assumptions that need to be made for him, but in general his term has not benefited the economy.

Trump (Photo: Reuters)

Corporate tax reduction: Effective, but less than thought

One of the steps that Trump has received much credit for, as a step that has contributed to U.S. growth since early 2018, is the legislative achievement of tax cuts, primarily for the business sector and much less for households. Along with reducing the corporate tax rate, President Trump "granted" additional tax benefits to the business sector. Such as an immediate reduction (credit) for tax purposes of all capital investment expenses, a gradual reduction over years has passed, as is customary.The

official corporate tax rate has dropped from 35% to 21% during President Trump's term, but is it really such a big benefit? Because in the first place, the effective tax rate in the United States - that is, the amount actually paid relative to the actual profitability of U.S. companies - fell in the two decades before President Trump's move from about 30 percent to about 20 percent, thanks to the benefits of U.S. tax planning. For the purpose of reducing tax payments considerably.

During President Trump's term, the effective corporate tax rate fell even further, from about 20% to only about 13%, a low effective rate compared to other large developed countries and too low to "bear" the US large budget expenditure.

The small deficit became a large deficit - even before the corona

The tax cut also had an economic price in the form of the large deficit that Trump leaves for future generations.

Trump got a country with a small budget deficit and increased it, unlike Obama, who got a country with a big deficit under the influence of the financial crisis and reduced it.

The increase in the deficit characterizes the entire period of his tenure and did not begin in 2020 due to the corona crisis.

This is a result of the continued decline in tax receipts and other revenues of the federal government, along with rising spending, including defense spending, which peaked during its tenure, even though the U.S. was not at war with any country during that period.

Trump received a relatively "lean" budget, with a total budget expenditure of about $ 3.6 trillion a year on average in President Obama's second term (2013-2016). It is interesting to note that Trump, as a Republican president who supports lean government and reduced state involvement in the economy, actually increased spending. The public throughout his tenure averaged about $ 4.1 trillion a year in his first 3 years (2017-2019), with spending skyrocketing in the past year, 2020, the year of the corona, to about $ 6.6 trillion (estimated by the Congressional Budget Office).

Unemployment - dropped to Corona, but a little

While under President Obama, the unemployment rate has consistently fallen from a peak of about 10% after the global financial crisis to about 4.7% at the end of his term, the decline in unemployment during President Trump, to a low of 3.5%, was already small, as was the annual increase in employment. To the Obama era, and this in light of the economy's close proximity to full employment at the beginning of Trump's term.

In contrast, the rise in the unemployment rate in the corona crisis was noticeably larger compared to the situation in 2009 following the global financial crisis.

Led major trade moves.

Obama (Photo: Reuters)

Over-investment in energy and important investments in technology infrastructure

The increase in investment in fixed assets during President Trump's period was influenced by his sympathy for the energy sector and the rise in energy prices, which led to a large investment, may even be risky given the manner of financing, in the field of energy.

Another area that has grown significantly in its real investments is the technological field and in particular technological infrastructure, where the growth trend has also accelerated in the past year.

The relatively low level of investment in residential construction on the one hand, and a significant increase in the rate of home ownership have contributed to a sustained rise in house prices in the US, with recent emphasis on private homes.

Trade Wars: The US lost more than it gained

The tariff wars that Trump initiated were a double-edged sword for the U.S. economy and Trump seems to have chosen to avoid further damage to the economy in the 2020 election year, so he initiated in January 2020 some respite from the war with China, failing to achieve any of the structural reforms he demanded from Beijing. , Purchase from the United States energy products and agriculture, but no more.

During Trump's tenure, the Chinese also chose to impose powerful trade restrictions on the U.S., not just through import taxation, and especially against U.S. services sectors.

These are "blacklists" of American companies in the field of services (transportation, travel, planning, consulting, education, health, etc.), to which the Chinese government has restricted the accessibility of various businesses in China.

This is a very important area of ​​activity for the United States, which grew rapidly in its exports to China until the Trump era, when it came to a halt and went down

.

The overall result is an upward creep in the current account deficit of the US balance of payments during the Trump era, from about 1.7% of GDP to about 3.5% of GDP, while doubling the size of the current account deficit in terms of GDP percentages during his tenure. This is reflected in a variety of areas, including the weakening dollar in the world.

Trump has abandoned the ability to participate in, and even lead, most of the moves in global trade agreements with allies, such as the TPP, which the Obama administration has negotiated.

A major alternative trade agreement was recently signed with the TPP, the RCEP, with China winning and the US out of the agreement. Similarly, the Trump administration was characterized by attacks on international and local institutions, some on the independence of the Fed and its head (the same), and withdrew from Paris agreements. On the environment, President-elect Biden will now have to try and restore the United States' position in the field of world trade and environmental cooperation.

Print and print and the stock market celebrated.

Fed President Jerome Powell (Photo: GettyImages, Bill O'leary)

In light of the data presented so far, the question arises as to why Trump is gaining so much credit in the economic field?

Beyond its marketing capabilities, the answer to this lies, in my estimation, in two parameters: one is the increase in household income.

The average wage increase during Trump's tenure has been significantly higher than in the Obama era.

Accordingly, the average per capita disposable private income of households reached a record high of more than $ 50,000 during the term of President Trump.

It is important to note that the increase in 2020 reflected more significant wage increases for the lower deciles and temporary incomes for these populations in 2020 as part of the significant budgetary support of a significant but temporary improvement in unemployment benefits and further unilateral transfers by the government (sending checks to middle-income citizens) -Low).

The second parameter by which Trump is considered a president who has done well with the economy is the stock market.

The Trump era was characterized by profits in the financial markets, which were higher than average during previous presidential periods.

Between 2017 and 2020, the S&P 500 rose at an average rate of 13.8%, more than the average annual rate of increase of about 12% under President Obama in 2009-2016.

In terms of the NASDAQ index, which includes a relatively large weight of technology companies, the increase in 2017-2020, the Trump era, was about 24.4% on an annual average - higher than the average increase of about 16.6% under President Obama in 2009-2016.

However, a dive into the details could indicate that the rise in prices during President Trump's period was affected by the low interest rate, and even negative in real terms, which pushed investors into the stock market in search of higher returns.

Moreover, the "relative weakness" of the stock market rise in Obama's 8 years in office stems mainly from the background conditions of the global financial crisis, the European debt crisis (also in other parts of the world) and a financial crisis in China during this period.

In contrast, President Trump “enjoyed” a relatively comfortable period during which, apart from the corona crisis, which was addressed through an unprecedented expansionary policy, and with the creation of a large debt to repay future generations, there were no very large global crisis events.

Moreover, Trump has acted on deregulation that has allowed certain sectors to “flourish” almost unhindered, such as the technology giants that are the largest companies in the market, sometimes claiming the possibility of various privacy violations.

Similarly, the energy sector has evolved rapidly, presumably at the expense of environmental protection.

Bottom line, the Trump era has been good for stock markets and household revenues, but other than a fragmented society it leaves a large deficit as a legacy for future generations (today's debt is taxes in the future) and needs many regulatory changes that put the "small citizen" rather than the big business at the top. .

The author is Dr. Gil Michael Befman, Chief Economist of Bank Leumi.

• Share on Facebook

• Share on WhatsApp

• Share on general

• Share on general

• Share on Twitter

• Share on Email

0 comments