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When then-presidential candidate Donald Trump released an economic platform in 2016 insisting his policies would raise the annual U.S. growth rate to 4 per cent, a level not consistently achieved since the 1960s, most economists dismissed the assertion as pure hyperbole.

Back then, the U.S. economy was in its eighth year of expansion after the Great Recession and running up against the inevitable constraints of the business cycle, near full employment and an aging population. Most experts thought a growth rate of about 1.5 per cent had become the “new normal” in mature economies such as the United States, Canada and Europe.

“We must replace the present policy of globalism – which has moved so many jobs and so much wealth out of our country – and replace it with a new policy of Americanism,” Mr. Trump said in a September, 2016, speech before The New York Economic Club. “If we lower our taxes, remove destructive regulations, unleash the vast treasure of American energy and negotiate trade deals that put America first, then there is no limit to the number of jobs we can create and the amount of prosperity we can unleash.”

On the economy, at least, no one can accuse Mr. Trump of not keeping his promises. With the co-operation of Republicans in Congress, the U.S. President has slashed personal and corporate income taxes, repealed scores of regulations and ramped up defence spending – delivering a powerful jolt of fiscal stimulus to an economy that had been on a fairly even, if unspectacular, keel.

On Friday, the U.S. Bureau of Economic Analysis announced that the U.S. economy increased at an annual rate of 4.1 per cent in the second quarter of 2018. Of course, GDP figures can be subject to big fluctuations from one quarter to another. But on Thursday, in anticipation of the strong quarterly GDP report, Mr. Trump was already taunting his critics.

“These are unthinkable numbers,” he told a rally at at an Illinois steel plant. “If I would have used these numbers during the campaign, the fake news back there would’ve said he’s exaggerating.”

So far, the tariffs Mr. Trump has slapped on foreign steel and aluminum have not had the disastrous effects his critics predicted. While U.S. manufacturers face higher production costs, this is being offset by a lower federal corporate tax rate (down to 21 per cent from 35 per cent) and the ability to write off 100 per cent of new investments as soon as they are made, instead of having to amortize them over several years or decades.

As Mr. Trump tells it, his policies have unleashed an “economic miracle.” Yet, there’s nothing miraculous about fiscal stimulus. If you slash taxes and crank up spending, you are going to get a response. Less so now, when the economy is already at full employment and most tax cuts have gone to the wealthiest households, than during a downturn when any extra money in the pockets of individuals is immediately spent.

The important questions to ask about Mr. Trump’s economic policies have nothing to do with their short-term impacts, which are explained in Economics 101, but rather with the damage they threaten to inflict on the U.S. and global economies in the longer term. The U.S. federal budget deficit is expected to surpass US$1-trillion in 2019 and the federal debt, which Mr. Trump vowed to reduce, will soon surpass US$22-trillion.

The President is upset that the U.S. central bank has raised interest rates twice so far this year, but it is precisely the Trump administration’s inflationary fiscal policies that have forced the Federal Reserve to tighten monetary policy faster than it would otherwise. The U.S. dollar is thus strengthening against other global currencies, threatening to widen the U.S. trade deficit that Mr. Trump insists he can eradicate with his protectionist policies.

This all sounds like an economic train wreck waiting to happen. The U.S. economy is now in the 10th year of an economic expansion, the stock market is maxed out, tax cuts have exacerbated income inequality and inflation is rising, eating into the purchasing power of Americans whose wages have not risen in real, after-inflation terms in years. Mr. Trump has embraced a discredited industrial policy, promoting old-economy industries such as steel and coal, at the expense of the difficult but necessary transition to cleaner growth.

Yet, Canadian businesses are pressuring the federal government to embrace Mr. Trump’s economic policies – minus the protectionism, of course. This has put Prime Minister Justin Trudeau and Finance Minister Bill Morneau in a political and economic bind. Deficit spending aside, Mr. Trump’s economic policies go against just about everything the Trudeau government stands for. And for now, at least, it should stand its ground.

The Trump economy is on a collision course with reality. Better to prepare for that eventuality than to copy economic policies that will prove devastatingly costly over time.

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