Economy Stock Market

U.S. Economy Rose 5.7% In 2021, Marking Fastest Growth Since 1984

According to the U.S. Bureau of Economic Analysis, the United States’ gross domestic product (GDP) — a measure of all goods and services produced — rose by 5.7% in 2021, not only rebounding from a brief recession from March 2020 but also marking the fastest growth since 1984’s 7.2% growth.

In the fourth quarter of 2021, thanks to increased consumer spending, real GDP increased by 6.9%. That’s a solid step up from the third quarter, which saw a disappointing GDP rise of 2.3% – the slowest mark since the second quarter of 2020. As CNN Business notes, that fourth quarter final was much better than many economists had predicted.

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All told, it’s a 9.1% swing when looking at the yearly change. In 2020, with COVID-19 sending businesses and people into lockdown, GDP decreased by 3.4% — the lowest since 1946 — with the second quarter hitting a minus 31.4%. During that time, over 22 million saw their jobs lost.

Meanwhile, the price index for GDP increased by 3.9% this year (compared to 2020’s 1.2% raise). Exports — along with inventories, investments, and PCE — were a crucial factor in the growth for both goods and services, with consumer goods, industrial supplies and materials, and food being the leading export contributors.

That export number also helps to offset the rise in imports, which subtracts from the GDP. According to BEA’s goods and services deficit report, the U.S. had accumulated $224.2 billion in exports and $304.4 billion in imports in November.

President Joe Biden commented on the rise in a White House press release, pointing out that for the first time in 20 years, the U.S. economy grew faster than China’s (which saw a 2021 GDP growth of 8.1% and a fourth quarter growth of 4%).

“This is no accident. My economic strategy is creating good jobs for Americans, rebuilding our manufacturing, and strengthening our supply chains here at home to help make our companies more competitive.”

Biden also stated that small businesses have grown by more than 30% since 2019, and that he plans to urge Congress to pass legislation that would keep the U.S. competitive while bolstering supply chains — which have seen continual pandemic issues — and investmenting in families and clean energy.

Speaking to NBC News, Bankrate chief financial analyst Greg McBride explained that the fourth quarter surge can be contributed to rising inventories, which accounted for 71% of fourth quarter growth. However, while degression should be expected early on in the new year due to COVID-19 variants, McBride sees the overall growth continuing in the coming months.

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“Omicron will put a dent in first quarter economic growth — we’re already seeing some of this with increased jobless claims — but demand remains strong, the labor market is tight, and the economy is poised for another year of solid, above-trend growth,” McBride said.

The final quarter of 2021 was able to avoid any potential variant hits due to Omicron first appearing in late November/early December. Consumer activity ramped up late into the year, with holiday sales rising 8.5%, the highest growth in 17 years.

That surge sent businesses spiraling into shortages of both supplies and workers, which in turn affected prices. While the GDP rose, so did inflation, which hit 7% in 2021 (the highest since 1982).

USA China Trade War 2

U.S. and China Discuss Rolling Back Tariffs

President Trump has invoked a trade war between the U.S. and China, resulting in potential economic damage to both countries. After Trump imposed tariffs on goods imported from China, China retaliated in kind, driving up the prices of consumer goods. Now, the two countries have agreed in an initial trade deal to roll back some of the tariffs each country has opposed on the other, pending finalization of their agreement. This development represents a reversal of the Trump administration’s position on tariffs, which they instituted in the first place, forcing China to retaliate. If the deal goes through, the price of consumer goods could decrease, boosting an economy which by traditional measures is already quite healthy.

Though Trump has canceled a planned tariff increase, he has continued to threaten Beijing with additional tariffs if they don’t comply with America’s terms. The battle between Trump and Xi Jinping has lasted for 19 months so far, and has caused pain for businesses, consumers, and investors in both countries. Following this news, stocks soared, as investors anticipate an end to the protracted and arguably unnecessary trade dispute. According to Gao Feng, a spokesman for China’s Commerce Ministry, the two countries have discussed resolving their differences over the past two sides, and have agreed to cancel tariffs by stages. However, a timeline has not yet been publicly established.

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As the reality of a deal between the two countries becomes increasingly likely, markets have reacted with optimism, as the S&P 500 rose to more than 3,090, approaching a record closing high. The companies most positively affected by the news are ones that have close ties to Chinese manufacturers and retailers. Despite the positive reaction in the markets, however, other sectors of the economy continue to struggle. In particular, the trade war with China has negatively impacted farm belt states like Iowa, Kansas, and Nebraska, where economic growth has slowed considerably. Though the Trump administration claims that Americans do not experience the effects of tariffs, businesses and farmers disagree.

This is not the first time that the United States and China seemed close to reaching a deal to end the trade war.

As a result of Trump’s presidency, American tariffs now apply to more than two-thirds of imports from China, whereas Chinese tariffs affect 58 percent of their imported goods from America. Tariffs are paid by consumers in the countries imposing the tariffs, making the trade war destructive on both sides, leading economists to issue warnings about the long-term impacts of ongoing tariffs. The imposition of tariffs on Chinese imports has long been considered a bad idea by experts, who are now vindicated by the Trump administration’s reversal of policy under significant public pressure.

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Issues unrelated to tariffs factor into the negotiations. American officials want China to take more aggressive action on protecting American intellectual property rights, for instance and contend that the ultimate decision is up to Trump. Additionally, the United States wants China to encourage more foreign investment and purchase more goods and services from abroad. This preliminary agreement suggests that China will be willing to make these concessions, but the final details have yet to be ironed out.

This is not the first time that the United States and China seemed close to reaching a deal to end the trade war. In May, the two countries agreed upon a resolution to end the trade war, which included concessions from China to change some of their business and legal practices. President Jinping even gave a speech celebrating the achievement. However, when a draft agreement was sense to the United States, significant changes had been made to the plan, leading Trump to accuse Beijing of reneging on its commitments. The changes to the draft agreement, which included the removal of promises to change domestic laws, were thought to have been personally made by Jinping himself. Only time will tell whether this new agreement suffers the same fate.