The US-Mexico-Canada Trade Agreement and Compounded Growth

The Associated Press has distributed an article claiming that the International Trade Commission, an independent federal agency, says that Trump’s new USMCA trade agreement will only yield an increase to the GDP of 0.35%.  To claim that this is a negligible effect is to be ignorant of compounded growth and the many other possibilities that government has for avoiding putting burdens on the private sector that impede economic growth.

If the US private sector economy grows by 2.9% a year or it grows by 3.25% instead, this can make a bigger difference than most people think it will.  The average American is going to live another 40 years, so let us project the effects of this difference in annual growth rate over a 40 year period.  An economy growing at a rate of 2.9% rate will be 3.138 times larger in 40 years than it was at the start.  An economy growing at a rate of 3.25% a year, or a 0.35% higher rate, will be 3.594 times larger.  This projected higher growth rate economy is 14.5% larger than the projected slower growth rate economy is.  That is a substantial difference.

Now some readers are going to say that the USMCA trade agreement will not increase the economy’s growth rate by 0.35% every year over 40 years.  That is probably correct.  A really good agreement might be able to do that, but the Trump agreement probably will not do that.  However, there are a plethora of ways that the federal government can take actions year after year that will allow the economy to grow by an additional 0.35% that year than it would otherwise.  The government can roll back expensive regulations with little rational reason to exist.  It can desist from instituting new regulations that cost more than they are rationally worth.  A decrease in the number of expensive and irrational regulations would give American companies much assurance that investing money in increased production in the USA will be profitable.  It is immensely damaging when a President declares that he intends to wipe out an industry he does not like and in so doing hurt supporting companies and the jobs of tens of thousands of Americans, as Obama did to the coal industry and his party threatens to do to the oil and gas industries.  It could stop over-withholding income taxes so that money could be circulating in the private sector economy at a higher velocity.  It can and should reduce taxes.  It should release many government employees so they can do productive work in the private sector.  It should release millions of acres of land it holds so that land can be put to much more productive use in the private sector.  It could take steps to greatly reduce absurd burdens due to excessive legal actions against companies simply because they may have deep pockets.

There are so many ways the federal government and state and local governments could act to see that future private sector growth rates are 0.35% larger year after year.  In fact, when Obama was suppressing the growth rates to levels of about 2%, the 40 year result compared to a 3.25% growth rate result is even more dramatic.  After 40 years at a growth rate of 2%, the economy is 2.208 times larger, while at a rate of 3.25% growth it is 3.594 times larger.  The higher growth rate economy at 40 years is 1.628 times larger than the Obama normal growth rate economy.  Imagine how much of an impact that added growth then has on the every day lives of Americans.  That larger society will provide much better medical care, produce much more advanced technology, have a much greater understanding of reality, provide individuals with many more options in life, and will surely allow a massive increase in charitable giving.

It is very foolish to minimize even seemingly small improvements in the economic growth rate.  The growth of the private sector is the basis for improvements in the richness and security of our lives.  We have the option of allowing the economy to grow at compounded higher growth rates that will make huge differences in the quality of our lives in our lifetimes and in those of our children.