Soybeans and short terms: The growth just isn’t there

According to early indications, recent U.S. economic growth was full of beans.

No, seriously. More than half of America’s soybean exports typically go to China, but Chinese tariffs will shift much of that demand to Brazil, and countries that normally get their soybeans from Brazil have raced to replace them with U.S. beans. The perverse result is that the prospect of tariffs has temporarily led to a remarkably large surge in U.S. exports, which independent estimates suggest will add around 0.6 percentage points to the U.S. economy’s growth rate in the second quarter.

Unfortunately, we’ll give all that growth back and more in the months ahead. Thanks to the looming trade war, U.S. soybean prices have plummeted, and the farmers of Iowa are facing a rude awakening.

Meanwhile, Trump’s trade war will benefit some unexpected parties. Was making Brazil great again part of his agenda?

But mainly I offer the parable of the soybeans as a warning against what’s going to happen later this month, when the advance estimate of second-quarter GDP comes in.

So what you need to know is that (a) quarterly fluctuations in growth are mainly noise, telling you very little about long-term economic prospects, and (b) more fundamental indicators show that Trump’s main policy achievement to date, last year’s tax cut, is basically delivering none of what its backers promised.

About those quarterly growth rates: By historical standards, the economic recovery since the end of the global financial crisis has been remarkably consistent. If you look at job growth you see a steady upward trend, seemingly unaffected by political events. Quarterly GDP growth has, however, fluctuated wildly, with a couple of negative quarters and a high of 5.2 percent in the third quarter of 2014.

The moral is clear: Pay little or no attention to short-term growth wobbles, which can be driven by transitory stuff like the reshuffling of world soybean trade.

Let me damn the 2017 tax cut with some faint praise: While the logic of the Trump trade war is completely muddled — never mind how it’s supposed to work, it’s not even clear what it’s supposed to achieve — the drafters of the tax bill did have a theory of the case. The story went like this: Lower taxes on corporations would lead to a huge surge of investment, which would raise productivity, which would eventually be passed on to workers in higher wages.

Anyway, when I say a huge surge in investment, I mean huge. Last year I looked at estimates from the Tax Foundation, the only independent institution willing to endorse highly optimistic assessments of the tax cut. Those estimates, it turned out, implied a boost in business investment of around $600 billion a year, or 3 percent of GDP.

Nothing like that is happening, and leading indicators of business investment, like orders of capital goods, show no sign of an investment boom ahead. Corporations have gotten a really big tax cut. But they’re using the extra money for stock buybacks and higher dividends, not investment.

As a result, there’s no reason to believe that the U.S. economy’s potential growth — the rate of growth it can achieve on a sustained basis — will rise from the 2 percent or less expected by most analysts.

The tax cut is utterly failing to deliver on its advocates’ promises.