By Devanshee Dave
The United States is the worlds largest economy, with its GDP contributing to around 25.58 percent of the total worlds GDP, in the year 2016. The US has got evident natural resources, well-built infrastructure, a good capital market, and most importantly, a free market which suffices to attract people. One of the biggest stock exchanges in the world, the New York Stock Exchange (NYSE), and the National Association of Securities Dealers Automated Quotations (NASDAQ) are both in the US It is also the worlds second-largest manufacturer. But in recent times, the Harvey and Irma hurricanes have affected the US adversely. Along with that, the new tax regime has its own havoc and the effects of the North Korea issue is just an addition to the turmoil for the worlds most influential economy.
The history of the US economy
After getting independence from Europe, US started blossoming. But the golden time for the economy came at the time of World War II, as at that time there was a hike in the economic activities and productivity. For the period of 1940-70, the US economy grew at an average of 4 percent. After that US faced a slowdown in the economy due to many reasons, one of which is the 1973 Oil Crisis, which further boosted the global competition.
After that came the Reaganomics inspired by the US President Ronald Reagan, in which markets were kept free, there was a reduction in regulations, taxes were low, and the money supply was higher. It had positive results, but also increased the governments debt. When Ronald became President it was $1trillion of the GDP, which accounts for $20 trillion now. Also, the debt-to-GDP ratio has increased from 40 percent to 100 percent today.
The adoption of new technology, like productivity-enhancing IT, in the workplace and the surge of high-tech companies, created an economic boom in the 1990s. The period between 1993 and 2001 is also known for the longest sustained expansion in US economic history, which also resulted in a rise in employment, income, and consumer demand. However, after the rise came the fall. Due to the internet, stock markets were driven by internet-based companies, which is also known as the Dot-Com Bubble. However, that soon busted in 2000 and led the market down. Alan Greenspan, the then Chairman of the Federal Reserve introduced low-interest rates to save the struggling economy of the US, which further led to the housing market bubble, and resulted in the Great Recession of 2008.
The hindrances in the US economy
After the election of Donald Trump, there have been some drastic changes in the US economy, from the restriction on H1B visa which affected many IT companies, to the recent issue of tax reforms. Along with that, the ‘Cold Word Wars’ between Trump and North Korean supreme leader Kim Jong-un has also caused significant stress. Also, the forecast by economists for the creation of employment in the US has missed its target. It was anticipated to create 1,80,000 jobs in a month, which turned out to be only 1,56,000. This has increased the unemployment rate from 4.3 percent to 4.4 percent.
Another matter of concern is the new taxation that is going to be imposed. As per the new reforms, corporate taxes, which are currently 39 percent, will go down to 25 percent. This will greatly benefit small businesses. This will also attract the countrymen to bring their businesses back to the US. But at the same time, it will create chaos, as, after these, many people will come under the basket of zero income tax. That is going to cost the US economy a lot, as the tax reduction of the business class only cut the government revenues by $2.6 trillion over the next ten years. Overall, the cost will be accounted for $2.4 trillion for the first 10 years and then for the upcoming years, it would be $3.2 trillion. Another area of concern is the Auto car loans given by the American banks. At the end of last year, debts of auto loans amounted to $1.2 trillion, which is 50 to 70 percent higher than that in 2010. Many fear this to trigger another bubble crisis like the mortgage crisis of 2007.
The current situation
As per an article in Forbes magazine, after the hurricanes, growth can be expected in the third quarter. This would be possible by rebuilding economic activity, and through purchases of new goods to replace the lost ones. Moreover, in order to recover from the losses caused by Harvey and Irma, there has been a relief of $15.3 billion given by the government. And thus, along with all these, US has achieved a GDP growth of 3.1 percent in the second quarter of this year, which goes along the promise given by Trump. This is also the fastest growth in the G7. The forecast by the International Monetary Fund (IMF) World Economic Outlook for the US was around 2.2 percent for the current year, which seems possible now.
The protectionist policy of Trump has also made the US back out from the Trans-Pacific Partnership (TPP), which will bridge a hurdle for the free trade between the US and other nations. In addition to that, the chairperson of the Federal Reserve, Janet Yellens term is also going to end in the beginning of 2018. As per an article in The Guardian, she has been the perfect decision maker for the Fed reserve and taking on another term by her will benefit the US. Organisation for Economic Co-Operation and Development (OECD) is also positive about the steady economic growth of the US. If decisions are made vitally, then Trump is all set to fulfil his ‘America First’ promise.
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