Imagine if President Trump signed his signature tax-cut legislation last December—and then resolved to keep his hands off the economy, unless there was an emergency.
It’s likely the stock market, which is down for the year, would be up handsomely instead. The United States would be getting along with its allies instead of picking trade fights with most of them. CEOs would be more confident, and farmers wouldn’t be worrying about getting shut out of important foreign markets. Republican odds of keeping control of Congress next year would probably be higher.
That’s not what is happening. As an encore to his tax-cut legislation, which businesses generally applauded, Trump has spent 2018 threatening tariffmania, which businesses generally condemn. Trump’s latest move, announced May 29, is a vow to impose tariffs of 25% on $50 billion of Chinese technology imports, beginning in mid-June. That news contributed to a stock market selloff (as did political chaos in Italy.)
And that is just the start of the economic protectionism Trump wants to impose. He has already put in place new tariffs on steel and aluminum, while exempting some countries but not others, in a pattern that seems strangely arbitrary. He ordered the Commerce Department to study the possibility of new tariffs on Toyotas, Volkswagens and 8 million other imported cars Americans buy each year. Trump could raise the stakes with China as well, since he previously said he was mulling tariffs on $150 billion on Chinese imports, three times the amount targeted by his latest policy.
A cloud over financial markets
If Trump had signed the tax-cut bill in December, and spent the rest of the time since then golfing rather than trade-warring, he’d be lording it over a rosy economy instead of jousting with trading partners. Trump’s trade disruptions are really the only cloud over financial markets, at least in the United States. Corporate profits are up, the unemployment rate is 3.9%, and employers have 6.6 million jobs they can’t fill.
Democrats and other Trump critics can fairly bash him for pursuing immediate economic gratification rather than long-term prudence, but with the midterm elections just six months away, Trump should be able to tell voters they’re better off every day under his administration. Trump doesn’t deserve all the credit for a robust economy, which has been improving steadily for years. But that doesn’t matter, politically. When voters feel like they’re getting ahead, they reward the guy they see at the podium.
Instead of cruising on tailwinds, however, Trump is provoking economic retaliation from China and opposition to his policies here at home. China has already imposed limits on American agricultural imports, and it will probably intensify those in response to Trump’s targeting of $50 billion in Chinese imports. American sorghum, soybean and ginseng farmers have been complaining of losing access to Chinese markets. Other farmers are now likely to join them. Same with some American business owners and industry groups that will end up paying more for components that go into their own products, on account of the tariffs. This will depress Trump’s popularity rating (which is already low) and cost Republicans votes in November.
Trump fashions himself a crafty negotiator, and some supporters say his threat of tariffs, which can be revoked, are just part of his deal-making style. Threaten disaster, then settle for modest concessions. But if that’s true, how long are we supposed to wait for results? Trump is already bringing friendly fire on Republican Congressional candidates he needs if the Republicans are going to hold onto the House and Senate in the November elections. His demands on renegotiating the North American Free Trade Agreement have created a deadlock that could last until 2019.
If Trump’s “deals” on trade take much longer than that, he’ll risk flirting with the next recession, which some economists think could arrive in late 2019 or 2020, after the short-term stimulus effect of the tax cuts has worn off. Trump’s leverage on trade isn’t great now, in part because of domestic opposition to his protectionist policies, much of it from inside his own party. In China, President Xi Jinping doesn’t have to grapple with such opposition. The man who wrote “The Art of the Deal” may some day learn the art of doing nothing.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman