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The U.S. economy under President Barack Obama expanded at the tepid annual rate of 2.1%, the slowest since World War II. The Trump administration claims that growth can now accelerate to 3% to 4%. In the dicey world of forecasting, almost nothing can be ruled out. But, sad to say, between now and the end of 2018 at least, the net effect of Trump and his policies should result in the economic expansion continuing at the same dismal pace.

Consider the president’s initiatives against international trade and immigration. When, for example, wood becomes more costly because of tariffs the administration has proposed on lumber imported from Canada, the housing sector will feel the drag, slowing growth. More generally, the Fraser Institute’s economic freedom index reveals a clear relationship between openness to trade and economic prosperity—and vice versa.

Economists who disagree about immigration focus mainly on the way it might redistribute domestic income. There is virtually no disagreement that immigration makes positive contributions to economic expansion. The president’s executive orders on this front are therefore undermining his stated aim of growing the economy at a faster rate.

Whatever you can say about the growth-inducing effects of a wider budget deficit—a likely prospect under President Trump—not much can be claimed about its ability to add jobs, now that the economy is approaching full employment.

And, according to the classic Keynesian prescription, the federal budget should be balanced at this stage of an expansion, instead of adding to a debt load that could eventually spark a fiscal crisis. Reason: At this stage, government starts taking resources from the private sector, stifling that part of the economy’s growth. The possible ramp-up of government outlays on infrastructure will have this crowding-out effect, since construction workers employed in these projects will be denied to marginal firms.

On the revenue side, the administration’s proposed tax cuts on personal income might provide a small boost to work incentives, but will be a huge revenue loser.

On the clearly positive side, the proposed corporate income tax cut should be revenue-neutral, and in the long run, at least, should help boost capital investment. Also potentially positive: the various initiatives to loosen the grip of regulation on credit, labor, and business—a subcomponent of the Fraser Institute’s economic freedom index, which has fallen since 2000.

Then there’s a wild card, which is surely positive: The clear thumbs up Trump has received from the relatively soft data, including consumer confidence surveys, the National Federation of Independent Business’ Small Business Optimism Index, the Institute for Supply Management’s polls of purchasing managers in manufacturing and services, and the bull market in stocks. These indicators will count for something in economic performance, although it’s difficult to gauge by how much.

NETTING ALL THIS OUT, Blue Chip’s May 10 consensus of 50 forecasters seems accurate in its modest growth targets for this year and next. The consensus is a simple average of all forecasts from Blue Chip’s survey respondents.

When presidential performance records are compiled, the usual procedure is to attribute to the departing incumbent any growth recorded in the calendar quarter when the newcomer takes over, especially since the takeover occurs weeks into that quarter. So in fairness, the second quarter will be Trump’s inaugural one. But the victory lap should be short-lived.

Expect Trump-bump hoopla when second-quarter growth numbers are released on July 28. The consensus projects the usual second-quarter snapback in real gross-domestic-product growth to an annualized 3.1% from 0.7% in the first quarter. April retail sales, reported Friday, confirm that poor first-quarter consumer spending, which weighed on growth, is due for an upside correction.

The consensus projects third-quarter growth slowing to an annualized 2.4%. For the year, fourth-quarter-over-fourth quarter gains in 2017 are projected at 2.1%, exactly the dubious-achievement average under Obama. The consensus expects a pickup in 2018, with expansion running at 2.4%. But that would still fall short of Obama’s two best calendar years: 2010 and 2013, during which GDP climbed by 2.7%.

Blue Chip also reports its consensus of the 10 most optimistic forecasters. They foresee growth of 2.6% in 2017 accelerating to 3% in 2018—truly a Trump-jump, since this would be the best back-to-back performance since 2004 and ’05. Let’s hope they’re right, whatever our political allegiance, because faster growth brings greater abundance to almost everyone.

Email: gepstein@barrons.com

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