Can Donald Trump really afford to jettison his economic policy over the Mexican border wall?

The pressure to settle with congress will eventually come from the US economy. The president does not want to see a recession on his watch

Going through security at Tampa airport just before new year, I realised something: these people are not being paid. For Britons and Europeans this is bizarre. Even Venezuelan government employees get paid, though the money may not be worth much when they come to spend it. While government shut-downs are common in the US, this one may be of a different order of duration. Here’s why...

Donald Trump’s instincts are those of a property developer and TV show host. We saw the first just before Christmas when he urged the Federal Reserve not to increase interest rates, for developers like cheap money. It didn’t work: the Fed went ahead. If it slows the pace at which rates rise this year it will be because of the data on the US economy, not presidential pressure.

Now he’s gone into show host mode again with his prime-time address from the Oval Office, seeking to put pressure on congress to release government funds to build his proposed Mexican border wall. This was his first-ever use of that format, the modern form of his predecessor Theodore Roosevelt’s “bully pulpit”. It does not look like as though this has worked either.

This is partly because his line – that the US faces an extreme national threat from immigration – is simply not credible. There are lots of threats the US faces, but it is hard to argue this should be top of the list. It is also because the new Democrat majority in the House will, just like the Fed, want to assert is its independence. Indeed it has to: it has to show where power lies. We are seeing a classic example of the adage that “the president proposes, but congress disposes.”

So how will this end? The general agreement among US political commentators is that this will be a long-running show. It is pretty rough on those federal employees that have to continue working and paying their bills while waiting patiently for a back payment of their wages, but it suits both sides politically to have a punch up. There will be a deal in the end, just as property developers that are under financial pressure have eventually to do a deal with their banks. But Donald Trump will string this out as long as he can – as he has, in his earlier incarnation, done in the past.

The pressure to settle will eventually come from the US economy. There are several points here. First, the economy is already slowing a little, and the R-word (recession) is starting to appear in financial commentaries. Second, the break in share prices in the final weeks of last year will have had consequences that have yet to emerge. Third, there is now more pressure on the president to do the trade deal with China – he needs a success story, and the US economy needs a deal. China has moved a long way to meet US concerns, and that will help him here. But none of this will force both sides towards a conclusion. Indeed, a trade deal with China actually strengthens Donald Trump’s position in the stand off as he could argue that the Chinese are more reasonable than a Democrat-majority congress.

There is, however, a long stop: the US debt limit. A new paper by Bank of America Merrill Lynch Global Research, which I have seen this week, notes that the shutdown risks a fight over the much more important debt limit. The treasury is alright until early March but after that, in the absence of an increase in the debt ceiling, it will have to start what are called “extraordinary measures” to pay its bills. It runs out of cash in August.

I cannot conceive that the shutdown will run through to August, but financial disruption will come much sooner. It is not in the self-interest of the president to have bumpy markets through the spring, because they will undermine the economy in the longer term. He does not want a recession on his watch, and absolutely not in the run-up to the November 2020 elections.

Markets are both a reflection of economic confidence and a determinant of it. We are seeing a wobble now in the markets but that has not yet transmitted through to the real economy. Reason says that it is in the self-interest of both the president and the Democrats in congress to do the deal on the border wall, if only to square up for the much bigger fight over the debt limit. But it may take a while for reason to prevail.

Meanwhile those decent, loyal people at Tampa airport will have to wait for their pay to come through.