Democratic political consultant James Carville once said that if he were reincarnated, he’d want to come back as the bond market because “you can intimidate everybody.” Donald Trump is not intimidated by the bond market. On the contrary, its fear of him has caused yields to fall.
What scares him is my profession. “The Economy is great,” he tweeted last week. “The only thing adding to uncertainty is the Fake News!” If we in the news media industry had such power over the economy, we’d be directing it so our business would be booming, which it is not.
But Trump’s instincts are never tethered to reality. He divides his days between finding ways to disrupt commerce and faulting the Federal Reserve for not cleaning up his mess. On Wednesday, he called the Fed governors “boneheads” and demanded that they “get our interest rates down to ZERO.”
Fed chairman Jerome Powell, while holding out the possibility of another rate cut, recently noted the obvious fact that “uncertainty around trade policy is causing some companies to hold back now on investment.” He explained: “For businesses to particularly make longer-term investments in plants or equipment or software, they want some certainty that the demand will be there.”
A reduction in interest rates that are already low will not stimulate borrowing and building when businesses are paralyzed by the uncertainty that Trump’s trade policies are fueling. When CEOs have no idea what their government will do next, the prudent thing for them to do is nothing.
Business people mistakenly assumed Trump would look after their interests. The ceaseless churn he has generated, however, undermines the policies that they welcomed.
The corporate tax cut he signed was supposed to unleash a flood of capital investment. But as The Wall Street Journal reports, “U.S. manufacturers are investing less in their factories and workforces as the trade dispute with China makes it more difficult to anticipate costs and demands.”
Wisconsin-based GHL International has put off a $4 million investment that would add upward of 40 jobs because the future is so murky. “You can’t play roulette,” chief executive John Lipscomb told the Journal. “You can’t gamble with 30 years of work.”
Trump’s trade wars have made business planning the equivalent of walking through a minefield in the dark. He’s called on U.S. companies to pull out of China and build plants in the U.S. — but if he lifts his tariffs tomorrow, that could be a disastrous mistake. Those firms that are located here but depend on exports to China, meanwhile, find Beijing slapping retaliatory tariffs on their goods, costing them sales.
Companies with plants in the U.S. whose supply chains run through China are at risk of losing critical components or paying more for them. Firms that could move operations from China to another country, such as Vietnam or India, have to wonder if that country will be Trump’s next target.
All this amounts to sand in the gears of the economy. In August, the Institute for Supply Management’s Manufacturing Index fell to its lowest level since January 2016, indicating a contraction that could be a harbinger of a recession. ISM’s survey found “a notable decrease in business confidence.”
Farmers are among the victims. Exports are down, and farm bankruptcies and loan delinquencies are up. American Farm Bureau Federation President Zippy Duvall said, “Many farmers and ranchers cannot withstand continued uncertainty in trade.”
It’s not helping the rest of us, either. Economists at the Atlanta Federal Reserve estimate that the trade uncertainty could shave more than 1% off our GDP until at least early next year. GDP growth fell from 3.1% in the first quarter to 2.1% in the second quarter, and the Atlanta Fed forecasts it will drop to 1.5% in the third quarter. All this under a president who said in 2017 that with his Midas touch, growth “could go to 4, 5, and maybe even 6%, ultimately.”
Those injured by Trump’s antics should expect little sympathy from the administration. Agriculture Secretary Sonny Perdue asked an audience of farmers in Minnesota: “What do you call two farmers in a basement? A whine cellar.” Trump himself claimed, “Badly run and weak companies are smartly blaming these small Tariffs instead of themselves for bad management.”
Plenty of presidents have seen the economy crater because of factors beyond their control. Trump seems intent on proving he’s not like them: He can kill a recovery all by himself.