Presidents get too much credit when the economy is good, too much blame when the economy is bad.
That has been my mantra for months and months whenever people ask about unemployment, stock markets or any other economic or financial measure, and how President Trump stacks up to his predecessors. Presidents can’t power-steer economies, I always say: They can affect things on the margins, through policy choices and leadership, but ultimately, business cycles are driven by forces beyond their control.
But given how many serious policy mistakes Trump has made lately, I’m starting to rethink that response.
To be clear, the economy today still looks strong, according to most headline economic measures (well, at least the few measures not suspended by the government shutdown — more on that in a bit). Unemployment remains close to a 50-year low, for instance.
Even so, the risks of a recession in the near term appear to be rising. In a recent Wall Street Journal survey of economists, more than half said they expected a recession to start in 2020. The risk of recession in the next year predicted by the Treasury spread — the difference in yields of government bonds of different maturities — has climbed to 21 percent.
And what could be to blame? Here’s how Deutsche Bank chief international economist Torsten Slok puts it: “If the shutdown and trade war continue with no end in sight, it could cause a recession in the U.S. economy later this year.”
The shutdown — which, lest readers have forgotten, began because Trump abruptly changed his mind about a wall-free funding bill after it had passed nearly unanimously in the Republican-controlled Senate — is shaving a tenth of a percentage point off economic growth every week. That’s according to an estimate from the White House’s own Council of Economic Advisers.
Little wonder why: Eight hundred thousand federal workers aren’t getting their paychecks. An estimated 1 million workers employed on government contracts with currently unfunded agencies are also at risk. Also suffering are the many ancillary companies — not just Delta Air Lines but also lots of smaller businesses, such as rest stops near national parks or food trucks in downtown Washington — that count on the government being open.
And then there are knock-on effects into other industries, as these workers have less money available for groceries, bills, haircuts and other daily spending.
Then there’s the trade war with China, which economists in an earlier Journal survey had identified as the biggest threat to the U.S. economy in 2019. The temporary truce agreed to in December still left existing 10 percent tariffs on $200 billion worth of Chinese goods in place. If there isn’t a deal by March 1, tariffs on Chinese imports will rise to 25 percent, which would be even more painful for the universe of U.S. firms that rely on Chinese inputs to manufacture their own products.
Recall also that the China trade war has been going on concurrently with other trade wars, plural, including our still near-global tariffs on steel and aluminum. These, too, have raised prices for U.S. manufacturers, especially relative to their competitors abroad. Steel prices, for instance, are 75 percent higher in the United States than they are in China, according to the most recent SteelBenchmarker report.
Retaliatory tariffs from China, Europe, Canada and elsewhere have also effectively locked many U.S. manufactured goods and agricultural products out of lucrative markets. The farm bailout was intended to allay some of this pain — but that, too, had been stalled by the government shutdown.
Twenty-five percent tariffs on foreign cars and car parts are also looking more likely, according to Trump ally Sen. Charles E. Grassley (R-Iowa).
With trade policy uncertainty climbing, businesses may become increasingly hesitant to make major decisions about investments and hiring. Which could drag on growth at precisely the same time that the sugar-high fiscal stimulus of the Trump tax cut fades.
Those are hardly the only unforced errors.
Trump’s attacks on Federal Reserve independence, continued turmoil in the White House and demonstrable incompetence among the most senior economic policy advisers are not exactly reassuring markets. Even if any one of these factors doesn’t tip us into recession, their cumulative effect — coupled with some sort of external shock, such as an oil price spike or a disorderly Brexit — could be disastrous.
Meanwhile, thanks to the shutdown, the government isn’t releasing many of the critical data points economists normally examine for signs of trouble. Thankfully, the Labor Department wasn’t affected by the partial shutdown (and its next jobs report, due Feb. 1, will reveal just how many people were laid off nationwide because of Trump’s temper tantrum). Funding lapses in other departments, however, have indefinitely delayed releases for trade, retail sales, building permits, the budget, crops and other crucial metrics.
But let’s be honest. If you’re Trump — and if the shutdown continues much longer — this data blackout may be a feature, not a bug.