Trade woes slowing US economy, deficit to top US$1 trillion in 2020: Budget experts

The US budget deficit is growing faster than expected even as President Donald Trump considers more tax cuts and other ideas that would add to government debt.
The US budget deficit is growing faster than expected even as President Donald Trump considers more tax cuts and other ideas that would add to government debt.PHOTO: NYTNS

WASHINGTON (REUTERS) - Higher trade barriers, including President Donald Trump's tariffs, are slowing the US economy and cutting household income, congressional budget experts warned on Wednesday (Aug 21), as Trump heads toward a 2020 election showdown with Democrats.

The nonpartisan Congressional Budget Office said changes in US and foreign trade policies since January 2018 will reduce inflation-adjusted US gross domestic product by 0.3 per cent from what it would be otherwise by 2020. It also predicted that trade would reduce real income for the average US household by 0.4 per cent, or US$580.

CBO also projected a deeper federal deficit of US$960 billion (S$1.34 billion)  for fiscal year 2019, which ends on Sept 30, due in part to higher government spending. The deficit is projected to top US$1 trillion next year - two years sooner than expected - and average US$1.2 trillion between fiscal years 2020 and 2029.

CBO data showed that annual deficits over the next decade would average 4.7 per cent of GDP, the highest since 2012 and significantly higher than the 2.9 per cent annual average of the past 50 years.

Over the longer term, CBO forecast that federal debt held by the public would grow from 79 per cent of GDP in 2019 to 95 per cent in 2029.

The projected impact of Trump's trade policy contradicts White House claims that the US trade war with China has had no damaging effect on the US economy.

Higher tariffs on a range of Chinese-made products are due to take effect on Sept 1.


"Our Economy is sooo strong, sorry!" Trump said on Wednesday in a series of tweets that blamed recession fears on the "Fake News LameStream" media while pressuring the Federal Reserve to boost growth by cutting interest rates.

Turbulence in the bond market last week stoked fears of recession, but CBO predicted the US economy would continue to expand.

The budget office left its economic growth forecast for 2019 unchanged, at 2.3 per cent. Though down from last year's 2.5 per cent growth rate, the CBO projected that higher discretionary spending by the federal government would offset downward pressure from trade issues, including reduced exports.

CBO projected the economy would grow at a 2.1 per cent annual rate in 2020 and then soften further to average 1.8 per cent growth in ensuing years.

But CBO said that rising domestic prices spurred by higher trade tariffs would reduce consumers' purchasing power and increase the cost of business investment.

"Tariffs also affect business investment by increasing business' uncertainty about future barriers to trade and thus their perceptions of risk associated with investment in the United States and abroad," CBO Director Phillip Swagel said in a statement that accompanied an updated 10-year forecast.

The effects of the tariffs on trade flows, prices and output are projected to rise over the next year, before the effects wane as businesses adjust their supply chains, the researchers said.