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President Donald Trump offered what some analysts called an olive branch to the global elite in Davos, even as the U.S. economy failed to meet the president's self-imposed benchmark in the fourth quarter of 2017.
In his speech on Friday, Trump told the world’s leading economic and political figures gathered at the World Economic Forum, “There has never been a better time to hire, to build, to invest and to grow in the United States. America is open for business and we are competitive once again.”
“He did hit on the major points of ‘America first,’ but he did it in a way that seems like ‘America first lite,’” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics.
In pitching the United States as a place for foreign interests to invest, Trump touted regulatory rollback and corporate tax cuts the GOP-led legislative and executive branches have implemented over the past year.
“In terms of the actual economics of this, taxes aren’t the top issue,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center. Taxes are on the list but not at the top. It’s a positive signal you could use, but it’s not going to be a defining one.”
Mazur said business sentiment towards the United States is more likely to be influenced by other factors, some of which paint American business interests in a less rosy light.
“The international community has not been happy with the U.S. on trade, on climate change — we’ll see if this changes the discussion,” he said.
Although Trump criticized “unfair trade” practices that he said left the United States at a disadvantage, he placed his long-standing “America first” talking point in the context of a global economic infrastructure.
A continuation of such restraint would behoove the administration, said Bankrate.com senior economic analyst Mark Hamrick.
“The reality is that the U.S. stands to lose more than it stands to gain by ripping up NAFTA and the TPP,” he said in reference to two trade agreements that have been frequent Trump targets.
The speed with which the TPP came together — minus American participation — indicates that the U.S. may no longer have the leverage it believes it does.
“Trump is trying to pare back some of his earlier harsh comments,” de Bolle said. “He put two olive branches out there,” she said, pointing to references the president made to bilateral trade agreements as well as alluding to the potential for negotiations with the nations participating in the Trans-Pacific Partnership, which Trump pulled out of a year ago, just days after taking office.
But this conciliatory tone may be too little, too late. “I think he believes that the U.S. does have leverage to open TPP talks,” de Bolle said. But the speed with which the TPP, minus American participation, came together indicates otherwise, she said. “That signals that whatever leverage the U.S. thinks it has is probably a lot less.”
The president’s remarks at Davos came in tandem with the fourth quarter GDP estimate released Friday. The U.S. economy grew by 2.6 percent, lower than the 3 percent forecasted by economists, bringing economic growth to 2.3 percent for 2017 overall.
This marks an improvement over the 1.6 percent growth sustained in 2016, but Trump’s focus on what many economists consider an unachievable level of sustained growth could backfire, analysts warned.
“Where it becomes problematic is the administration itself has sought to make the 3 percent GDP target part of its branding,” Hamrick said. “We know the U.S. economy has tended to perform closer to 2 percent over time… The president has failed to manage expectations.”
Countering broadly positive data points on consumer spending and durable goods orders — which went up 2.9 percent in December, according to a Commerce Department report released Friday — was an increase in imports that put a drag on GDP.
“The biggest drag was a significant widening in the inflation-adjusted trade deficit,” said Joseph Lavorgna, chief economist for the Americas at Natixis. “That took over one full percentage point off GDP,” he said, adding that if the trade balance wasn’t a factor, GDP growth for the quarter would have been 3.7 percent — a figure much more in line with what Trump has been promising.
Lavorgna said that Trump and Treasury Secretary Steven Mnuchin’s reaffirmations in support of a strong dollar indicate sensitivity to what the stock market perceives as positive. While this is a good sign that they understand dialing back anti-free trade rhetoric is in the better interest of the American economy, analysts warned that this economic miss could prompt the administration to retrench and double down on an anti-globalism agenda.
“However, the GDP data this morning will help test that thesis,” Lavorgna said. “The administration might seize upon that wider trade deficit as rationale for promoting a renegotiation of NAFTA and other trade deals,” he said.
“Imports have been couched as the bad guy by the Trump administration, and he has this very clear, transactional view on imports,” de Bolle said. “That’s certainly a risk.”