Taxes Trade

Trump’s Trade War Cuts Off Tax Cut Investment

JM Ashby
Written by JM Ashby

A relatively minor increase in business investment preceded and followed the passage of the GOP's tax cuts for the rich in December of 2017, but whatever portion of that small boom could be attributed to the tax cuts appears to have evaporated.

Business investment during the past 12 months slowed to the lowest level since President Obama's last month in office.

From MarketWatch:

A key measure of business investment slowed 1.3% in the 12 months ending April from 3.8%, marking the smallest increase since the last month of Barack Obama’s presidency in January 2017.

The slowdown in investment began, not surprisingly, after the Trump administration slapped tariffs on billions of dollars of Chinese goods after the two sides failed to find common ground. The White House has also picked trade fights with Canada, Mexico, Japan and Europe. [...]

“It is becoming clear that whatever boom the tax cuts may have created, if they did much at all, is largely gone,” said Joel Naroff, chief economist at Naroff Economic Advisors.

While business investment has slowed significantly over the past year, growth in American exports has also slowed from 10 to 1.3 percent since this time last year.

It's not a coincidence that business investment, manufacturing output, and exports have slowed along with Trump's decision to escalate his trade war every few months. These indicators all began to fall in the spring of 2018 when Trump imposed tariffs on imports of foreign steel and aluminum followed by tariffs on Chinese goods.

You may recall that most economists predicted that the GOP's tax cuts for the rich would add over 1 percent to economic growth during the first year but would slowly taper off in the following months and years. It would certainly appear that has been the case, but Trump's trade war certainly hasn't helped. It seems evident that his trade war has accelerated the rate at which the GOP's tax cuts are no longer visible in economic data.

Now that the GOP's tax cuts are no longer leading to any meaningful changes investment, all we're left with is the enormous cost of the tax cuts.

  • muselet

    “Trade wars are good, and easy to win.”

    All you have to do is tank your own economy and declare victory. Easy peasy.