Is the US economy headed straight to crazytown?
The recent election suggested — and subsequent polls showed — that a public happy with the economy under Donald Trump is nevertheless very unhappy with the man himself. It took a massive amount of discontent with the president’s character and conduct for voters to punish his party at a time of low unemployment, rising wages and quarterly growth exceeding 3 percent.
Now suppose the benefit of a strong economy were to be pulled out from under Trump in the months to follow. What would be Trump’s selling point then? His charm and wit?
Goldman Sachs expects growth of the U.S. economy to “slow significantly” later next year, shrinking to 1.75 percent. And former Treasury Secretary Larry Summers now thinks there’s a 50 percent chance the U.S. will be in recession by 2020.
“We’re in crazytown,” Trump’s chief of staff, John Kelly, reportedly said of working with his boss. Is the economy headed there, as well? Actually, it’s already arrived.
“Insane” is how former Federal Reserve Chairman Alan Greenspan describes Trump’s various trade wars. This foolish policy is definitely behind the astounding 94 percent drop in the sale of American soybeans to China, by far the world’s biggest buyer of soybeans. To make up for losses he created by destroying the farmers’ best export market, Trump has launched a bailout program. It’s not nearly enough to cover the farmers’ losses, but it does keep the beneficiaries somewhat distracted with paperwork.
In retaliation for Trump’s tariffs, Europe raised its taxes on American peanut butter, orange juice and bourbon and plans to expand the list. Canada and Mexico are piling tariffs on U.S. pork and cheese.
In a trade war, both sides lose. “It’s just the winner loses less,” Greenspan said, adding, “Why we’re doing it probably is very deep in the psyche of someone.”
The trade wars are a factor in the stock market’s anxiety attacks. “Markets have fallen and risen over the last nine months depending in part on how bloody-minded Mr. Trump seemed on trade,” The Wall Street Journal wrote last month.
Not all of Trump’s trade policies have been totally panned. The Journal praised the new North American Free Trade Agreement for not being a “disaster.” It’s only somewhat worse than what it replaced, an editorial said, and a whole lot better than the unilateral withdrawal Trump was threatening.
This trade policy — opposed by nearly every reputable economist, left, right and sideways — is a totally manufactured crisis. Only crazytown could think it up.
And even if the trade wars were to vanish, American producers wouldn’t be able to simply pick up where they left off. Buyers are developing relationships with farmers from other countries, while Americans have lost their reputation for reliability. (Canadians are cleverly selling their soybeans to the Chinese at high prices and buying American soybeans at a bargain for their own use.)
The Republican tax cuts supercharged the stock market, but at the cost of unleashing trillions in deficits for the years to come. A fiscal policy that piles on enormous debt in the middle of a strong economy is nuts. The tax cuts’ power to boost stock prices is now waning. Meanwhile, Americans still owe the money.
Goldman Sachs expects the Fed to raise interest rates next month and four times next year because of inflation, with tariffs and soaring deficits partly to blame.
Rising rates have sent homebuilders’ confidence into a tailspin. They come just as U.S. household debt has hit a record high, with a surge in delinquencies on student, auto and credit card debt. Uh-oh.
“Trade wars are good, and easy to win.” So tweeted Trump in March. Crazytown, here we are.