Tariffs

GDP Growth Is Good News—But Can It Continue During a Trade War?

The nation's GDP rose 4.1 percent in the second quarter, but those good numbers aren't likely to last.

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Tinnaporn Sathapornnanont/Dreamstime.com

The Commerce Department's Bureau of Economic Analysis says the nation's real gross domestic product grew 4.1 percent in the second quarter of 2018. That's good news, but the looming consequences of Donald Trump's tariffs mean it likely won't last.

The GDP numbers, released today, show an improvement over the first quarter's 2.2 percent growth. It's the first time the economy has grown more than 4 percent in a quarter since 2014.

It wasn't all sunshine and roses: Residential investment fell for the fourth time in five quarters, meaning that people are putting less money into home construction. But for the most part, the GDP report suggest a strong economy, with consumer spending going up 4 percent and business investment rising 7.3 percent. "The bottom line is that the economy is doing better," Diane Swonk, chief economist for the accounting firm Grant Thornton, tells The New York Times.

President Trump thinks this is just the beginning. "We're on track to hit the highest annual growth rate in over 13 years," he said after the numbers were released. "And I will say this right now and I will say it strongly, as the deals come in one by one, we're going to go a lot higher than these numbers, and these are great numbers."

But as the nonpartisan Committee for a Responsible Federal Budget explains,

Many analysts believe the second-quarter growth numbers are artificially inflated by shifts in consumption to avoid the new tariffs announced this quarter. Most significantly, China appears to have accelerated purchases of soybeans, crude oil, and other exports before new tariffs went into effect. Pantheon Macroeconomics estimated the soybean surge alone could account for as much 0.6 percentage points of the growth rate. These accelerated purchases mean faster growth now at the expense of slower growth later.

In other words, foreign companies appear to be importing as many goods as they can from the U.S. before their own governments retaliate against Trump's tariffs with duties of their own. Once those tariffs are in place, American goods won't be in such high demand, which will hurt future GDP growth.

"We're getting explosive growth in the second quarter because of trade," economist Ellen Zentner of Morgan Stanley tells the Times. "You've got a big hole on the other side of that."

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  1. GDP Growth Is Good News?But Can It Continue During a Trade War?

    Short version – Yes.

    1. 🙂

      1. Short version – Yes as long as the Trade War is mild.

        The Pew Research Center wrote about the average tariff is different countries. It said:

        In 2016, according to the World Bank, the average applied U.S. tariff across all products was 1.61%; that was about the same as the average rate of 1.6% for the 28-nation EU, and not much higher than Japan’s 1.35%. Among other major U.S. trading partners, Canada’s average applied tariff rate was 0.85%, China’s was 3.54% and Mexico’s was 4.36%.

        World Bank data on GDP growth show positive GDP growth for China all of this century and positive GDP growth for Mexico for most of this century even though Mexico and China have tariffs that are more than twice the USA tariffs. Although the trade war saddens me a bit, there is no need to panic. Our tariffs are so low to start with that we can raise them significantly and still be with the range of other countries with growing economies. No one accuses the leaders of countries that already have high tariffs of being the new Hitler on account of their trade policies, because they don’t want to sound racist.

  2. It’s a journalist’s job to find a dark cloud for every silver lining.

    1. Now it is. Yes

      1. This story, and some of the others posted over the previous days, convinces me that Reason’s reporting on trade issues is slowly becoming as factual, rational, and objective as their stories on immigration.

        When Shikha posts a column conflating high tariffs with xenophobia, then you will know they have reached that point.

  3. It wasn’t all sunshine and roses: Residential investment fell for the fourth time in five quarters, meaning that people are putting less money into home construction.

    The tariffs on steel and the tight market for construction workers might be a factor. The elimination of real estate tax deductions could also influence this trend.

    1. Actually, it’s wood tariffs on Canada that is a much bigger factor for home construction, combined with rising interest rates.

      The mortgage interest deduction was reduced from $1M to $750k, not a huge change and I welcome it. Make the limit lower! But, the deduction for real estate companies would more than make up for it. I’m curious how it will affect multi-family and the rental market in general.

  4. Obama should still get credit for any good economic news. Putin’s Puppet has been terrible for the economy, but fortunately he hasn’t completely destroyed it yet.

    However, if Drumpf remains in office too much longer and continues his draconian, white nationalist immigration crackdown, the economy might never recover.

  5. “Residential investment fell for the fourth time in five quarters, meaning that people are putting less money into home construction.”

    After 2008, a lot of houses ended up vacant for various reasons, and mortgage companies were in no hurry to sell them. (Because they had to mark them down to market as they sold, and if they did that with too many houses in a short while, they’d fall under statutory equity floors, and be legally obligated to close up shop.)

    Vacant houses decay. A lot of US housing stock was destroyed over the last 10 years. I saw that first hand house hunting a few years back; It was terrifying how many houses would look good in old listing photos, but when you got there, they’d been vandalized, or a broken pipe had flooded them, or a leaky roof had mushrooms growing in the living room.

    I would speculate that all that has happened, is that the lost housing stock has now been replaced, and building rates are back down to maintenance levels.

    1. Largely irrelevant. The houses in decay are in different locations than where housing is in demand.
      A combination of Canadian lumber tariffs and rising interest rates are killing the homebuilders.

      1. Housing is stupid expensive and has been for awhile. This is not new.

  6. So far as I can see, we have been in a Trade War with much of Europe since the founding of the EU, and possibly since the creation of the Common Market. And with China since we started doing business with them after Nixon’s trip. All that Trump is doing is fight back on much the same terms are we are being fought. And it seems to be getting results.

    In any case, since others have been wilding Tariffs against us during long economic booms, the answer would seem to be “Yes”.

  7. GDP is not the perfect indicator of economic growth but even it will go up each year as the shackles of government over-regulation are swept aside by Trump and his few supporters in Congress.

  8. “You’ve got a big hole on the other side of that.”

    TWSS.

  9. The nation’s GDP rose 4.1 percent in the second quarter, but those good numbers aren’t likely to last.

    That is guaranteed to be true without attributing a change in those numbers to anything at all.

  10. I remember during the Obama years it was all the rage to say that growth was hurt once debt to GDP hit a certain level, and we were very close to it. Any updates on that idea?

      1. That is profoundly dumb and two years old. Then, there’s the goldbug. And the guy comparing to Italy and Greece, who don’t have their own currency.

        1. So, debt to GDP is no problem for you. Kay.

          1. Nope. It’s really not an issue. We could use more inflation than we have!

            The problem is that the Republicans have cut revenue, blown up spending, and the returns are quite meager, and we’re nearing the end of the business cycle. We went in to debt and have little to show for it.

            1. The Krugman is strong in this one.

            2. Happy Chandler|7.27.18 @ 6:05PM|#
              “Nope. It’s really not an issue. We could use more inflation than we have!”

              Idiotic lefty assertion from lefty idiot who assumes that lefty assertion amounts to an argument!
              Fuck off, slaver

              1. You seem very hostile toward your betters, Sevo.

                Was your bid to switch from third shift on the IT help desk denied again? Does your supervisor, with his elitist degree and fancy people skills, still not recognize your seniority?

                Or are your parents insisting you go back to the doctor responsible for your original placement on the spectrum, and threatening to take away your gaming chair?

  11. “CBO forecasts”

    So, imaginary. Got it

  12. This is really great news for economics way, but I want for information about that so I go to http://techdial.strikingly.com/
    here I found all kind of solution which I will need.

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  13. Every economist said that we’d see a good GDP simply because of Trump’s ‘pending’ tariffs as companies pre-ordered massive amounts of merchandise and stock before they hit… One on the tube yesterday said it accounted for 1.6% of the 4.1% quarterly GDP we experienced. This will not repeat as now companies have too much supply… Back to 3% again. Big surprise.. Admittedly, Trump is correct.. He did cause this pop! LOL!

    1. Our newest lefty bullshitter posts:
      John B. Egan|7.27.18 @ 6:00PM|#
      Every economist said that we’d see a good GDP simply because of Trump’s ‘pending’ tariffs as companies pre-ordered massive amounts of merchandise and stock before they hit… ”
      “Every economist, you lying pile of shit? Not kidding: please give us the list of “every economist” dimwit.

      “One on the tube yesterday said it accounted for 1.6% of the 4.1% quarterly GDP we experienced. This will not repeat as now companies have too much supply… Back to 3% again. Big surprise.. Admittedly, Trump is correct.. He did cause this pop! LOL!”
      So now one has made a claim?
      Fuck off, slaver,

  14. “GDP Growth Is Good News?But The Narrative! The Narrative! Won’t somebody think of The Narrative?”

    1. Look up-thread; there are plenty of lefties whining that Trump should be impeached or some such bullshit.

  15. The media is forced to give Trump some credit and simultaneously twist what are widely considered strong economic indicators into gloomy indicators.

  16. The quarterly GDP jumps all over the place. And this quarter has the excuse that folks were trying to export to JINA before the retaliatory tariffs there went into effect. Let’s see what 2018Q3 has in store.

  17. “It wasn’t all sunshine and roses: residential investment fell for the fourth time in five quarters, meaning that people are putting less money into a home construction.” So? The factors that determine the breakdown of spending, including consumers’ preferences, change all the time. What matters when trying to gauge the strength of the economy is the total value of goods and services produced. Is anyone concerned that investment in railroad stock was once again lower than in 1912? Or that we spent less on napalm than in 1969?

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