Howes: Partisan politicking, presidential ego flash recession signal
Equity markets tanked Wednesday after yields on closely watched government bonds flashed strong recession signals, precisely what no sitting president wants to see even if his political adversaries do.
The Dow Jones Industrial Average plunged more than 800 points and all 11 sectors of the Standard & Poor's 500 fell, but not because corporate earnings are weak, consumer confidence is slipping or unemployment is rising. They aren’t, yet. No, blame presidential stubbornness, partisan politics and the near-certainty that neither side is likely to change.
With the arguable exception of his decision earlier this week to delay until December another round of tariffs on Chinese goods, President Donald Trump refuses to acknowledge (even as his commerce secretary does) that American businesses and consumers ultimately pay to fund his transpacific belly-bumping over trade with President Xi Jinping.
And congressional Democrats sympathetic to the president’s China bashing nonetheless refuse to give the president any win on trade, whatever it might mean for the economy. They know their intransigence on NAFTA 2.0, along with swooning equity markets, slowing growth rates and rising economic anxiety, increase the likelihood of delivering exactly what they want: a recession, just in time for the 2020 presidential campaign.
If it comes, us sad-sacks forced to live with the consequences can credit the politics of our time, a gaudy spectacle of cynicism and fakery fueled by social media and rank partisanship. It'd be yet more evidence that growing economies don't die natural deaths; they're killed by deliberate policy mistakes, often rooted in petty political maneuvering in search of temporary advantage.
On Wednesday, as the Dow plumbed session lows, Trump deflected responsibility for the swoon or the fact that his beloved tariffs might be stiffening headwinds for an otherwise strong economy. Predictably, he channeled his tariff-happy economic adviser, Peter Navarro, and used his preferred bully pulpit to position the Federal Reserve to take the fall.
"We are winning, big time, against China," the president said in a tweet, calling the Federal Reserve and Chairman Jerome Powell clueless. "Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down.
"China is not our problem .... Our problem is with the Fed. Raised too much & too fast. Now too slow to cut" interest rates. "We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!"
That remains to be seen, Mr. President. An inverted yield curve in mid-2007 accurately predicted the arrival of what became the Great Recession, but economists say the phenomenon — when the yield on 10-year Treasuries slips below that for two-year notes — does not always prove accurate. By almost every measure, U.S. economic conditions remain strong, unemployment hovers near 50-year lows and business generally reports more job vacancies than people to fill them.
Still, politics and jockeying for advantage loom. So does the president's inclination to deny parentage for the markets' reaction to his flailing trade policies, a multi-front war with allies and adversaries that is weakening major economies and producing yet more uncertainty as growth already is slowing.
How this would benefit Trump's re-election bid remains a mystery known only to him. Trade in the global age is a multinational game with regions and nations playing to their own competitive advantage. It's true that China sells the United States more than the U.S. buys from China. But it's also true that American companies like, say, General Motors Co. sell more vehicles in China than in its home market — and have going on something like five years.
Investors invest in growth stories and the promise of upward trajectory. And they sell when growth slows, uncertainty emerges and erratic, unpredictable government policy-making confounds decision-making or is slammed into reverse.
The president built his campaign around promises to renegotiate trade deals with Mexico and Canada, China and the European Union (he hasn't). He vowed to deliver tax reform, to cut government regulation (which Team Trump did), to reform costly fuel-economy mandates (which it hasn't yet), to revive lost manufacturing jobs in the industrial Midwest — a process no president can control.
The president's most powerful argument for re-election is the strength of the U.S. economy, but he alone is in danger of gutting it with tariffs and trade policy delivering a lot more pain than gain. A winning strategy it's not.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.