In many ways, Donald Trump has inherited the “golden age” he claims to usher in. All he has to do is not screw it up.
Economically and financially, the United States has rarely been in such good health.
The world’s largest economy has recorded annualized growth rates close to 3% over the past year, its potential growth has increased since before the pandemic and the performance gap with the rest of the world, driven by technology , is obvious and continues to grow. Less than 5% of global investors believe that a slowdown in the US economy is on the horizon.
Jobs are plentiful, the economy remains at full employment by any reasonable definition, and annual wage growth adjusted for inflation is twice the average of the last 40 years.
The post-pandemic inflation spike that caused a sharp tightening in borrowing costs has eased. Inflation has fallen back to near the Federal Reserve’s 2% target, and interest rates are falling again as a result.
To be sure, part of the high price paid to get here is the US government’s excessive deficit, which has widened to a worrying 6% of national output and which has pushed US public debt above revenue. gross domestic value of an entire year.
However, thanks in part to the dollar’s enduring role as the world’s primary reserve currency, domestic and foreign creditors remain relatively relaxed, and there have been few signs of strain in government financing channels.
In fact, America is attracting more direct and portfolio investment abroad than ever before, thanks to its gigantic companies that are all the rage around the world. American stocks today represent around two-thirds of the total capitalization of global stock indices.
What is there to complain about? Even if it is not “golden”, it is a rare period of lasting prosperity that every other country on the planet envy and in which they want to invest. Don’t talk about it, but the global investment world has been thinking “America First” in many ways for at least the last four years.
RICH “AGAIN”?
Yet in his inauguration speech on Monday, Mr. Trump insisted that “America’s golden age begins now.”
“We will become a rich nation again,” he later added.
It’s a strange aspiration for an economy that is already one of the richest on the planet, with an annual GDP per capita of almost $87,000 last year. That’s about 60% more than Germany or Britain, more than twice as much as Japan and seven times more than China.
Meanwhile, investors don’t seem entirely convinced that there will be nothing but sunshine on the horizon. Since the election, markets have been roiled by the risk that many of Trump’s proposed policies – additional tax cuts, fewer migrant workers and thus higher wages, and higher import costs due to tariffs important – revive inflation and widen budget deficits even further.
And with the economy performing almost perfectly, there is concern that overstimulation at this stage could lead to poor results.
-One of the biggest fears is that bond markets will respond to worsening inflation and deficits by bursting the entire bubble with a sharp rise in the cost of credit, of which we had a brief glimpse at the start of the year. ‘year.
The Trump team counters that inflation risks will be reduced through a mix of oil and gas drilling that lowers energy prices and swaths of deregulation. At the same time, the tax cuts will be financed by reducing public spending, reducing the size of the administration and increasing import tariffs to generate revenue abroad.
Yet the fear remains that Mr. Trump’s policies will repeat his hyperbolic rhetoric, thereby causing the eclipse of a golden age rather than its advent.
MARKET CLOSE UP
Investors looking at the first 24 hours of the new administration for clues about what to expect over the next four years may conclude that we’re in for plenty of fiery speeches and market price loops. .
But it is even more difficult to know whether the rhetoric will match the scale of the eventual results.
Before the inauguration, the dollar had appreciated and foreign stock markets had fallen, in part because of Mr. Trump’s repeated promise to raise tariffs on day one. Yet the speech and related decrees and directives contained no specifics.
The dollar therefore fell, but Mr. Trump then insisted that the tariffs on Mexico and Canada would be implemented next month, if these countries did not make further commitments to end the illegal immigration and drug trafficking. Implementing universal tariffs and overhauling U.S.-China relations will take longer.
The dollar and stocks have started to rise again, with many prices returning to roughly their pre-inauguration levels.
In summary, customs duties could be applied, but it is not yet clear where and when. And while markets will continue to wave around the president’s saber, it’s possible that neither policy actions nor net market outcomes will ultimately matter much.
For the economy as a whole, this may well be the most reasonable path Mr. Trump’s team can take. Lots of headlines about marginal adjustments – but no crashes, bangs or wallops.
So the golden age that Trump aspires to will have some chance of reflecting the golden age he has set foot in.
The opinions expressed here are those of the author, a columnist for Reuters.
