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Greenville Business Magazine

Post Election: The Economic Outlook

Jan 01, 2017 04:54PM ● Published by Makayla Gay

By Kailash Khandke

Professor of Economics, Furman University


Soon after the November U.S. presidential election, the stock market reacted extremely positively to the Trump win with all the three major stock market indices – the Dow Jones Average, the S&P 500, and the Nasdaq Composite Index – trending upwards and reaching all-time highs. The stock market is typically a reliable indicator of consumer confidence and this bodes well for the future and markets in general. Most economists, including this one, are quick to point out that the stock market isn’t everything. The question is, will this early consumer and investor sentiment  trickle down to other parts of the economy and translate into sustained economic growth, significant job creation, and continuing low levels of inflation in the economy over the next 1-4 years?

One of President-elect Trump’s major campaign themes was a promise for a larger public works program and infrastructure spending on, among other things, highways, bridges, airports, and harbor ports. This, coupled with recent post-election announcements of the “largest tax change in U.S. history since the Reagan era,” does have the potential to achieve economic growth close to, say, 3 percent—and if we are lucky, say, 4 percent over the next two years. It is important to keep in mind, though, that in today’s integrated global world, booms are the exception rather than the rule. Consider the fact that over the last 16 years of this century, the economic growth rate in the U.S. has been above 5 percent on just two occasions, while downturns in the economy where the growth rate has been below zero occurred nine times. The question then becomes, could a pro-growth plan that increases infrastructure spending in combination with a reduction in tax rates and corporate tax reform (also being proposed by the incoming administration) be sufficient to outweigh any negatives that arise from running up larger federal budget deficits that will inevitably follow? If the incoming administration is able to streamline the approval process and quickly identify states that have shovel-ready projects for the aforementioned highways bridges and ports, in theory this could provide a short-term boost to the U.S. economy.

Which brings us to our economy and the state of South Carolina. Just this past September, the U.S. Senate passed the Water Resources Development Act (WRDA) approving the Charleston Harbor Deepening Project. Final approval now lies in the hand of the House of Representatives. The Trump election may be viewed as good news for the state of South Carolina, especially given recent declarations to fast-track an infrastructure bill through Congress in 2017. Given the magnitude of such a harbor-deepening project, the prospects for the low country area of our state could be quite significant. State senator Lindsey Graham said, “At the end of the day, harbor deepening is really about jobs—today and in the future. … The port is South Carolina’s most vital economic engine.” 

(See full article at www.mcclatchydc.com/news/nationworld/national/article102061557.html)

Right through the campaign cycle and even more recently, President-elect Trump has called the North American Free Trade Agreement (NAFTA) the “worst trade deal” and has announced he is ready for the U.S. to renege on this agreement. This was certainly far from music to the ears of a company like Boeing, that decided to build only its second plant facility for its 787 jetliner outside the state of Washington at a site close to Charleston airport and Charleston harbor. China would almost certainly react to any increased tariffs on Chinese imports in a tit-for-tat game with its own tariffs on U.S. exports, and would almost certainly move to cancel its $3.2 billion order from Boeing and threaten to switch to Airbus, Europe.  Nobody would win in such a trade war, least of all South Carolina, whose share of exports as a percentage of U.S. exports has increased from 1.6 percent in 2012 to 2.1 percent in 2015. Exports to China alone have increased during this same period from 12.9 percent to 14.2 percent (https://www.census.gov/foreign-trade/statistics/state/data/sc.html).

 Meanwhile, a tariff escalation would certainly hurt our state’s other thriving industry: the automobile supply chain industry. The approximately 250 automobile parts firms in South Carolina that source products from Mexico and Canada would be hurt if these countries threaten to impose their own tariff sanctions, and it would damage their ability to export their goods to the large number of major automobile manufacturers all over the world. Workers in the U.S. and in South Carolina would almost certainly lose in a trade war. A better strategy would be to work with the WTO to try and close loopholes in the existing trade agreements, find more favorable terms of trade for the U.S., and to try and ensure, for example, that Chinese and other companies in other countries don’t benefit from theft of intellectual property developed in the U.S.

Dr. Kailash Khandke is the Frederick W. Symmes Professor of Economics at Furman University. He obtained his Ph.D. in Economics from the University of California Davis, in 1993.  Professor Khandke has been with the economics department at Furman since 1995.  His teaching and research interest include, international trade, economic growth theory, and electoral political cycles.

Viewpoints, Economic Development

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