President Trump’s decision to postpone new tariffs on Chinese imports until Dec. 15 helped give U.S. stocks a short-lived bump on Tuesday. But the decision will also likely offer another, more substantial stimulus to another stock in the coming months: Trump’s reelection hopes. And that would make the long-term continuation of the trade war with China more, not less, likely.
Those hopes are boosted by the strong economy. Trump’s job approval ratings have been poor throughout his presidency, but polls regularly show voters give him higher marks for economic management than for his overall performance. If the economy drops into recession, as some economists have feared would happen because of the trade war, Trump’s chances for a second term would drop considerably.
Those calculations have not deterred him from increasing the conflict so far. So why the change of heart now?
Trump’s decision likely has everything to do with the Christmas holiday season. Holiday gift-giving is a big deal: The National Retail Federation estimates that many retailers will do about 30 percent of their annual business in this period. Overall, holiday sales represent about 19 percent of all annual retail sales.
Trump’s original tariff decision would have caused significant price increases just in time for Christmas. The goods on this list — computers, cellphones, video game consoles and toys — just happen to be items that are high on many shoppers’ holiday gift lists. Had he persisted in levying 10 percent tariffs on these goods as of Sept. 1, he would have risked being viewed as the Grinch whose tariffs stole Christmas.
That’s all changed now. By delaying the tariffs until Dec. 15, Trump ensures that cheap Chinese goods will still be available for the holiday season. Stores buy their wares months in advance; delaying the tariffs until later ensures that consumers won’t see price hikes during the busiest shopping season.
Trump himself acknowledged this Tuesday: “We’re doing this for Christmas season, just in case some of the tariffs would have an impact on U.S. customers,” he told reporters. That atypical understatement underscores how much advisers must have urged him to do this lest 2020 start with images of angry shoppers irate over the tariffs.
Most political science models show that voters discount economic swings within a few months of an election, except in extreme cases such as 2008’s financial crash. Alan Abramowitz’s “time for change” model, for example, uses annualized gross domestic product growth from the second quarter of the election year to measure the economy’s impact on the election. Pushing the new tariffs off until December increases the chances that economic growth will remain positive during that crucial time.
Even a small positive impact from the delay could mean the difference between victory and defeat. Abramowitz’s new, post-2016 model predicts electoral college votes rather than popular vote shares, and he finds that Trump will win a slim majority even if he continues to have a significant net negative job approval rating. According to Abramowitz’s model, Trump will win 283 electoral college votes even with a negative-10 percent net job approval rating (Trump’s current rating is a net negative-10.2 percent) if second-quarter GDP growth hits 2 percent. But if growth slumps to just 1 percent, Trump’s predicted electoral vote haul drops to 263 — seven fewer than he needs to win. The new tariffs will still likely affect second-quarter GDP growth, but delaying their onset by just four months could reduce that impact enough to matter politically.
China shows no indication of buckling under Trump’s demands, and it is likely able to ride out its own growth slowdown through next year’s election. That makes Trump’s reelection of crucial import to determining the length of the trade conflict.
If you believe, as I do, that the United States must begin to decouple its economy from China’s, Trump’s reelection would be a good thing. Having been reelected even after two years of increasing trade confrontation would give him four years of freedom to continue to pressure China. The United States might go into a recession in late 2020 or early 2021, but history shows an incumbent party can recover politically from an economic downturn early in a presidential term. It’s not so clear Chinese President Xi Jinping could sustain his power if Chinese growth continues to drop precipitously after Trump remains in office.
Analysis of the tariff delay has thus far focused almost exclusively on its short-term economic impact. But the political impact could be far more important. Trump’s early Christmas gift to himself could end up giving him an even bigger gift in 2020: four more years in the Oval Office. And that would likely give him the time he needs to continue tightening the screws on Beijing.