The 4% Solution By: Gabriel PotterMBA, AIFA® 2017.01.23

Free market economists have long argued for economic policies which could, in theory, boost US growth from its currently tepid 2.0% - 2.5% range to a more robust 4% target.  President Trump has gone a bit farther, making the ambitious 4% target the explicit benchmark for success on his administration’s webpage.  Certainly, some of President Trump’s policy fit with previous Republican suggestions, including lowering the corporate tax rate.  However, Trump differs from the party line when it comes to expansion of free-trade.  This morning, Trump invited CEOs of the manufacturing sector for a conference where he indicated there would be new advantages for US manufacturers.  What could those advantages be?  Business Insider reports the Trump administration is considering a full 5% tariff on imports.  Even if these policies don’t spur retaliation, protectionist policies like tariffs could undermine Trump’s ability to reach his 4% target.  Major bank economists have already warned that the exorbitantly high tariffs espoused on the campaign trail (45%) would throw the world into a global recession, but even a modest 5% tariff could strip -1% of potential growth away from the US GDP rate, according to Citi’s chief economist, Willem Buiter.

In short, the 4% rate is a challenging target to hit, even in the best circumstances.  Getting to 4% will be even harder if we include proposed policies which are likely to stifle growth.

 

 

 

 

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

More about Gabriel Potter
Sign up for our Newsletter
Sign up for our Newsletter