The United States economy continued its sluggish pace in the fourth quarter of 2016, posting an anemic 1.9 percent growth rate. Overall, the economy grew at a rate of only 1.6 percent for 2016, the lowest rate of growth for the U.S. economy since 2011.
Frustration with the slow pace of economic recovery was a major reason for President Donald Trump’s surprise victory in November, and the early economic indicators show that most Americans have confidence that the economy will improve under Trump’s leadership. All three major stock indexes soared to all-time highs Wednesday morning, and analysts predict that stock growth may not be finished yet. According to CNNMoney, consumer confidence also reached an all-time high in December 2016.
But the actual performance of the U.S. economy shows that Trump has inherited a serious challenge in terms of turning around years of stagnation and low growth indexes. If Trump is able to shepherd his proposed infrastructure plan through Congress, it should be expected to have at least some short-term effect on economic growth as the government dumps hundreds of billions of dollars into the private sector, but Trump himself has acknowledged that such measures serve only to “prime the pump” and that ultimately the private sector has to generate its own growth on the strength of its own capital.
Trump has thus moved aggressively to create an environment in which the U.S. private sector will be able to succeed in the long term, pushing a program that would slash business-stifling regulations and preparing to navigate a business tax reform package through Congress that would at least theoretically stimulate private sector growth. These moves have drawn praise from the business community and generated much of the bullish sentiment about the future of the economy under Trump that is reflected in recent gains on Wall Street.
Less clear, however, is the economic effect of Trump’s other major push — a renegotiation of United States trade deals with an aggressively protectionist stance. These moves have drawn skepticism from both sides of the political spectrum, but the Trump administration remains confident in their efficacy, and appears willing to go to the mat to defend his ideas. It’s less clear that he will have congressional support in these measures, however. While House Speaker Paul Ryan (R-Wis.) has signaled a willingness to push Trump’s infrastructure stimulus plan and tax reform plan through Congress, he has flatly ruled out any consideration of new tariffs or aggressively protectionist policies. Without Congress’ backing, there is little Trump can do to unilaterally change U.S. trade policy, which is largely dictated by pre-existing federal law.
However, if Trump has shown anything in his first week in office, it is that he intends to follow through on his campaign promises to the greatest extent possible, and Trump promised to punish perceived trade cheaters with extreme regularity on the campaign trail. Trump’s determination to prove that his theories work may soon lead to a showdown on Capitol Hill. The better the U.S. economy does between now and then, the better Trump’s bargaining position with Ryan is likely to be.