Trump circus’ $1-trillion party

Some numbers lie, and many are true. A few are not just astounding but gob-smacking. Both these thoughts came to my mind when I read reports that the US economy grew by a mind-blowing 4.3 per cent in the third quarter of this calendar year. Most analysts forecasted that the best possible scenario during this period of tariff wars, mercantilism, and often inexplicable behavior of the president, Donald Trump, was a growth rate of 3+ per cent. More than four per cent growth rate is indeed beyond remarkable.

Look at it this way. There are more than 180 nations whose GDP is less than $1 trillion each. But if the US grows at a pace of four per cent in an entire year it adds $1.2 trillion to its economy. In other words, in just a year, the nation creates a sub-economy that is larger than most nations, and four times the size of Pakistan. Although the third-quarter numbers are gob-smacking, they are also quite mysterious. Just like the Indian GDP numbers are.

On the surface, officials contend that an extremely high level of consumer spending was the key reason for the phenomenal growth in the US. We said the same in India. In any case, America is a resilient economy (remember the phrase about India). But what is of particular interest is to compare America’s performance with the European Union (EU). Some years ago, the EU was a rival when it came to economic performances, technological innovation, and the sizes of the economies. However, thoughts that it could outgrow America was put to rest, and fell by the wayside.

Over the last decade or so, the US grew much faster than the EU, and is now more than 50 per cent larger. The GDP of the US is just over $30 trillion, while the EU trails far behind at $20 trillion.  Perhaps the only economy that can compete with the former is China which, itself, has proved to be a resilient economy. Despite the punitive tariffs imposed by Trump, the Chinese economy may grow by five per cent in the current fiscal. Such an annual growth rate is also equivalent to an addition of $1 trillion.

Hence, these numbers are outstanding, and establish that despite its frenetic rise, India is still years away to emerge as a key player in the global calculations. China and the US have de facto become the G-2 as Trump described the two nations before his famed meeting with China’s Xi Jinping. To that extent, one needs to admit that Trump’s White House circus is making the world dance to their tunes, but delivering economic results. Q3 proves it. Or does it? This requires a deeper analysis of the figures in the recent past.

In the first quarter of the current calendar year, the US’ GDP saw a minor contraction because of the utter confusion created in the immediate aftermath of the inauguration of Trump, and his helter-skelter policy announcements related to trade, tariffs, and investments. In the second quarter, the growth was an excellent 3.8 per cent, with a higher figure in the third quarter. Clearly, America sits at the top of the global economic heap, and there is no country of any consequence that can hope to catch up with it.

The key, according to analysts, is technological innovation, and a consistent rise in productivity. No one can doubt this. In technology, despite China’s leaps-and-bounds growth in the past 10-15 years, the US leads the way by a wide margin. China has heft because it has control over rare earths. But it lacks the chips that Nvidia makes. The temporary trade deal between Trump and Xi involves a transfer of rare earths from China, and advanced chips from the US. Still, there is another lingering question that haunts the minds of serious analysts across the world.

There is no doubt that innovation is the bulwark, and foundation stone for the sustained prosperity of the US, and the high (among developed economies) growth despite being $30 trillion in size. But what the followers and supporters of Trump, and MAGA seem to forget is that most of this innovation stems from the Silicon Valley, and is driven by the migration of a talented pool of workers from China, Korea, India, the Philippines, and others. India is an important player when it comes to tech-based skilled manpower.

Trump’s anti-immigrant policies, whether they relate to H1B visas or other forms of discouragement, may become a secular trend over the next few years. In such a scenario, America will face a severe shortage of tech manpower, which drives innovation and productivity. This may dent America’s growth even if, as Trump hopes and dictates, the local tech giants pump in hundreds of billions of dollars in home factories, and plants. Lack of migrants will increase manpower and other costs, which will lead to MAUA (Make America Uncompetitive Again) as was the case a few decades ago.

Let us turn to the explanations by the Bureau of Economic Analysis, and other think tanks. They suggest that despite the excellent growths in the past two quarters, for the fifth consecutive month, which is a record in about two decades, consumer sentiments in the US are weak, and down. Hence, consumer spending cannot sustain growth over the next few quarters. Indeed, the numbers in the past two quarters can be more explained by feelings of fear, and desperation. Knowing that high tariffs would kick in against important importing nations like India, and China, the US buyers went overboard to stock, and refurbish inventories.

More importantly, the growth figures may lull Trump, and his advisors into a false sense of confidence and complacency. Immediately after the third quarter figures came in, Trump triumphantly announced on Truth Social, “The TARIFFS are responsible for the GREAT USA Economic Numbers JUST ANNOUNCED… AND THEY WILL ONLY GET BETTER! Also, NO INFLATION & GREAT NATIONAL SECURITY. Pray for the US Supreme Court.” The last was obviously the reference to the highest court, which will decide if the tariffs are constitutional.

Both the factors can derail or stall growth in the future. If weak consumer sentiments persist, and if policies become wonky and twisted, this near-miraculous growth may become a thing of the past. The challenge then, for Trump is: Will his brand of theatrics, and circus-style of management of the economy work in the long run? Of course, this is merely a $30-trillion question.

The author has worked for leading media houses, authored two books, and is now Executive Director, C Voter Foundation; views are personal