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May 24, 2019, 12:05 p.m. EDT

Poof! Trump investment boom is gone

Trump trade fight with China offsets gains from business tax cuts

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By Jeffry Bartash, MarketWatch


Getty Images
President Donald Trump has tried to go to bat for U.S. manufacturers and their workers, but his trade fight with China is also hurting the economy the longer it drags on.

The Trump investment boom is gone.

Well, mostly gone. 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.

Read: Durable-goods orders slump in April as business investment almost dries up

The near-freeze in investment is a sharp reversal from the large increases that occurred after President Donald Trump took office and ushered in the biggest corporate tax cuts in 31 years.

The pace of investment, based on core capital-goods orders, surged to five-year high of 13% in the fall of 2017 and continued to grow near a double-digit rate until last summer.

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.

Now it may be that a tougher stance on trade wins concessions that help American companies and the U.S. in the future, but there’s also a clear cost to the economy right now. The U.S.-China standoff has made it harder for companies to procure supplies, raised costs for businesses and consumers and deterred badly needed investment.

“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.

Trade tensions with China are not the only problem. The dollar /zigman2/quotes/210598269/delayed DXY -0.19%   strengthened in value, and the global economy softened toward the end of 2018, making U.S. exports more expensive at a time when demand was already waning.

The result: Manufacturers have taken a big hit and growth in U.S. exports has slowed to a yearly pace of 1.3% from as high as 10% just one year ago.

Auto sales have also tapered off a prolonged post-recession boom, and the worldwide grounding of Boeing’s /zigman2/quotes/208579720/composite BA +0.33%  737 MAX jet has hurt one of the nation’s largest manufacturers.

Read: U.S. manufacturers grow in May at slowest pace in nine years.

The marked turn in the U.S. economy is reflected in the stock market. Wall Street /zigman2/quotes/210598065/realtime DJIA -0.15%   /zigman2/quotes/210599714/realtime SPX -0.0063%  has suffered sharp losses in the past week after negotiations with China broke down.

The good news? The slowdown in investment is not irreversible. The U.S. and China could reach a trade deal soon, alleviating pressure on business and giving a boost to the global economy.

In short: Trump might be able to revive the boom in investing to which his tax policies originally contributed — if he resolves the trade dispute with China before the damage becomes long-lasting. But time might be running out.

“The more tensions escalate and the longer the negotiations continue, the more uncertainty there will be and become more of a drag be on investment spending in the U.S.,” said Ward McCarthy, chief financial economist at Jefferies LLC.

/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
98.43
-0.19 -0.19%
Volume: 0.00
Sept. 17, 2019 10:53a
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/zigman2/quotes/208579720/composite
US : U.S.: NYSE
$ 380.10
+1.25 +0.33%
Volume: 542,753
Sept. 17, 2019 11:02a
P/E Ratio
44.42
Dividend Yield
2.17%
Market Cap
$213.18 billion
Rev. per Employee
$660,961
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,037.28
-39.54 -0.15%
Volume: 57.55M
Sept. 17, 2019 11:03a
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/zigman2/quotes/210599714/realtime
US : S&P US
2,997.77
-0.19 -0.0063%
Volume: 485.90M
Sept. 17, 2019 11:03a
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Jeffry Bartash is a reporter for MarketWatch in Washington.

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