Trump took credit for a growing economy. Now what?
But the commander in chief has had a lot less to crow about lately, and many economists and business-watchers say some of this is his own fault.
The Dow Jones industrial average took another nose dive Friday, marking its worst week since the 2008 financial crisis — a plunge exacerbated by the impending government shutdown sparked by Trump’s demands for a Southern border wall, along with broader fears of a recession.
News reports over the weekend that Trump wants to fire his Federal Reserve chairman, and an unexpected and strange Sunday statement from Treasury Secretary Steven Mnuchin that there’s nothing to panic about, set the stage for further stock market drama Monday.
And before all this, markets and CEOs were already rattled by Trump’s ongoing trade war with China, inconsistent messaging, and public browbeating of the Fed — all possibly raising the risks of an economic slowdown.
“I don’t think if Hillary Clinton or Marco Rubio or Jeb Bush had won their presidential races that we would be instituting tariffs on our allies. We probably would not be instituting tariffs on China, and there certainly wouldn’t be considerable concern about a damaging trade war,” said Michael R. Strain, director of economic policy studies at the American Enterprise Institute, a leading conservative think tank, ticking through many of the concerns driving the worries of economic slowdown and the stock market’s recent roller-coaster ride.
It’s difficult to parse just how much credit or blame any president deserves when it comes to the economy, he added, but in this case, “I think there’s a good amount of blame here that you can put on President Trump.”
At the least, Trump “is costing himself the upside that he promised,” said Douglas Holtz-Eakin, an economist who advised the late Senator John McCain’s Republican presidential campaign in 2008. He called Trump’s trade policy “utterly detrimental.”
“You can kiss 4 percent [growth] goodbye,” Holtz-Eakin said, referring to Trump’s past pledge to rev up the US economic engine to that level.
The stock market is on track this month to record its worst December performance since 1931 — which, students of history may recall, was not a particularly auspicious time in US economic history. CEO confidence soared in the early days of Trump’s tenure, thanks to regulation rollbacks and tax cuts, but now it has plummeted to a two-year low, according to a survey released last Monday. It found the administration’s trade policy among the top reasons for growing pessimism.
In a separate survey, close to half of chief financial officers said they think the US economy will enter a recession by the end of next year.
“Most of the issues that we are dealing with today are induced by bad political choices,” FedEx chief executive Fred Smith, a Republican, groused on an earnings call last week in which the company slashed its 2019 profit outlook, singling out Trump’s “unilateral” decision to slap tariffs on a range of imported goods as a key factor behind slowing global growth. Trump launched the fight in hopes of causing China enough pain that it would make concessions on intellectual property and other trade-related disputes between the countries.
Trump’s frustration with the recent market exploded into cyberspace last week with tweets haranguing the Fed to stop raising interest rates. “It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us . . . the Fed is even considering yet another interest rate hike. Take the Victory!” Trump tweeted Dec. 17.
Fed chairman Jerome Powell — whom Trump picked for the job but now is “not even a little bit happy” about — and his colleagues declined the president’s advice, moving Wednesday to raise the Fed’s key short-term interest rate for the fourth time this year.
By many measures, the US economy continues to look strong, a view the Fed reinforced with its decision to boost interest rates, which makes it slightly more expensive for businesses and consumers to borrow money and, the Fed hopes, keeps inflation in check. Unemployment is at a 49-year low. Wages are up. Holiday spending is strong.
Even his critics say Trump cannot be blamed for all of the recent stock market volatility. Some was to be expected as the Fed at long last normalized monetary policy following the 2008 financial crisis. International tumult surrounding issues such as Brexit are among the factors weighing on global growth. And in the midst of the second-longest expansion in the record books, economists say, the US economy would naturally slow eventually.
But Trump isn’t making matters easier on himself.
Take his very public frustration with the Fed. The irony is that while there’s enough uncertainty in the global economy to mount a strong argument that the Fed should pause — and many economists like Paul Krugman, along with Wall Street investors, have quite loudly advocated for that — Trump’s public outbursts pressure central bank officials to press on, lest they look like they are caving in to political pressure, Fed-watchers say.
“If that forces them into a policy mistake, he’s hurt himself,” Holtz-Eakin said.
In recent decades, most presidents have largely avoided expressing any public thoughts about monetary policy, so that investors do not start doubting the Fed is doing what is best for the economy.
Trump’s various trade disputes, particularly the smoldering trade war with China, rank high on the list of reasons Wall Street is worried about a recession.
Among other antagonistic trade moves, the president slapped tariffs on $200 billion of Chinese goods in September and threatened to go further at the start of next year.
China retaliated. Earlier this month, Trump and President Xi Jinping of China agreed to a 90-day cease-fire, but Wall Street’s initial relief evaporated when news reports revealed the two sides still appeared further from a resolution than Trump initially indicated.
Tariffs spark worries about slower growth because they raise prices for US consumers, who drive 70 percent of the nation’s economy. They also make it more expensive for businesses to buy the goods and services they need.
And the uncertainty surrounding the unresolved trade picture takes its own toll as companies scramble to figure out where to source their widgets or where they should build that new factory.
Businesses are saying “we don’t know where to invest because we don’t know who we’re going to trade with . . . and we need to know the rules of the road and where there might be potholes. We don’t know how to move forward — we’ll hesitate, we’ll delay investment,” said Diane Swonk, chief economist at the accounting firm Grant Thornton.
Stock-market losses alone are unlikely to hurt Trump with his base, since few of them are wrapped up in the daily movements, said Jon McHenry, a Republican pollster and strategist. But if the recent turmoil is a leading indicator for the larger economy, it poses a real danger, as it would for any incumbent president, he said.
That’s likely more so for Trump, who has logged hundreds of tweets essentially declaring himself the mastermind of “the best Economy in the history of our country!” as he described it in mid-September.
“If the economy goes down, that is a huge deal for any president,” McHenry said, “but certainly for one who has taken credit for so much of what’s going on with the economy.”