In the 2016 election, candidate Donald Trump famously declared, “I could stand in the middle of Fifth Avenue and shoot somebody and I wouldn’t lose voters.”
Now, as president, he’s essentially making a similar boast about the economy. It might go like this: “I could cause a recession and I wouldn’t lose voters.”
And who knows? In today’s scrambled American politics, he might be right.
Still, Monday’s sudden drop on Wall Street, triggered by the escalating trade war Trump started with China, is a big flashing warning light.
The usual caveats apply: The stock market has predicted nine of the past five recessions, as the great economist Paul Samuelson said. The market is a product of millions of individual decisions, goosed by electronic trading. And indices such as the Dow are only tangentially connected to the larger economy.
All true, and the market has stabilized Tuesday morning. But people are rightly nervous.
Trump is threatening to impose a 10 percent tariff on additional $300 billion in Chinese imports. The move is apparently meant to pressure China into giving him a “win” on trade negotiations that are going nowhere.
In return, Beijing allowed its currency, the renminbi, to fall below 7-to-the-dollar, a psychological barrier that rattled investors. And it declared China would stop new orders for U.S. agricultural products — a threat to Washington ag producers for whom China is one of the largest export destinations.
Then Trump’s Treasury Department labeled China a currency manipulator. It’s an official designation, but doesn’t give Washington much recourse except to impose tariffs, which is already happening.
“China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation,’ ” Trump tweeted. “Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”
Well, no. China hasn’t been a manipulator in recent years; it’s worked to stabilize the renminbi. The currency rose back to 7-to-the-dollar Tuesday.
A weak currency could give China an advantage in export markets, one its leaders hope offsets the damage of U.S. tariffs. But the move is risky, too, making foreign consumer goods more expensive in China.
Whatever happens next, damage is being done. Every tariff is a tax on American buyers. The decoupling of the world’s two largest economies would be a momentous event, seeding enormous costs and perhaps a future war.
Through June, Washington merchandise exports totaled $31 billion compared with $37 billion at the same time last year, according to WiserTrade. Some of this is thea result of a broader global trade slowdown.
But the trade war is paramount. Washington’s exports to China declined to $4.2 billion from $6.7 billion at the same point in 2018. Aerospace exports fell 57 percent. If the trend continues, China could drop off as the state’s largest trading partner.
So far, the U.S. economy remains strong amid the longest expansion in American history. But how much stress can it take?
— The stress of Trump’s effort to politicize the Federal Reserve, bullying it into cutting interest rates at the wrong time (rates aren’t typically reduced in a strong economy). The central bank put a brave face on the move, saying it was an “insurance cut” against global slowing and the trade war, as well as low inflation. Still, the risks of an overheating economy and crash rise.
Trump has also nominated wildly unqualified ideological stooges to the Fed board, so far unsuccessfully, but he’ll keep trying.
— The stress of confrontation with Iran after Trump pulled out of the multilateral deal to limit Tehran’s nuclear ambitions. Since then, Iran and the West have engaged in a tit-for-tat seizure of oil tankers. The danger of a war is real, especially with Trump’s hawkish National Security Adviser, John Bolton.
Closing the Strait of Hormuz, through which tankers carrying oil for 20 percent of world demand traverse, would be an economic hammer blow.
— Then we face non-Trump events — Brexit and the protests in Hong Kong — that bode ill for stability. And Trump isn’t providing customary American leadership at such moments.
Remember “No Drama Obama”? I can, barely. But it’s no fun being trapped in a reality television show.