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Trump administration considering abandoning tariffs as looming recession threatens to ruin 2020 re-election hopes

Economists believe slowdown is coming despite US president's boasts

Tom Embury-Dennis
Tuesday 20 August 2019 12:32 BST
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Trump's economic adviser dismisses recession fears

Donald Trump could reportedly abandon some of his tariffs if the US threatens to go into recession, amid fears among Republicans a tanking economy would ruin the US president’s 2020 re-election hopes.

Despite insisting the “fundamentals” of the US economy remain solid, the White House is preparing options to bolster it in case it continues to slow, including by reversing tariffs and giving American workers a payroll tax cut, according to the New York Times.

Administration officials cautioned, however, that the potential tax cut had not been pushed with Mr Trump, and that they were “not something that is under consideration at this time”.

While Mr Trump would be loath to remove tariffs which he insists are hurting China and making the US “much richer”, he earlier this week backed down on new trade sanctions against Beijing, amid concerns new tariffs on consumer goods could hamper the critical holiday shopping season.

Mr Trump has tied his re-election to the success of the economy like few other presidents, and while it continues to outperform most other developed nations, economists say there are reasons to worry.

Growth is slowing, stock markets have swung wildly in recent weeks on recession fears, and the housing and manufacturing sectors are stalling.

A new survey on Monday showed a big majority of economists expecting a downturn to hit by 2021 at the latest, according to a report from the National Association of Business Economics.

That came after last week's yield curve inversion, a market indicator that has preceded the last seven US recessions.

Mr Trump has sought to play down increasingly gloomy forecasts, saying on Sunday: "We're doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they're loaded up with money, I don't think we're having a recession."

It comes amid increasingly stark poll numbers for the president, whose disapproval rating climbed to 56 per cent in Fox News polling published last week. That figure was just one point short of a record high and a five-point increase on last month.

In further ominous news for the president, another Fox News survey found him to be less popular among voters than Democrat presidential candidates Joe Biden, Bernie Sanders, Elizabeth Warren and Kamala Harris.

A case can be made for the White House position on economy. The US job market is setting records for low unemployment, and the economy has continued uninterrupted growth since Mr Trump took office.

But Mr Trump took to Twitter on Monday to urge the Federal Reserve to stimulate the economy by cutting interest rates and returning to "quantitative easing" of its monetary policy, an indication of deep anxiety beneath his administration's bravado.

White House aides and campaign advisers have been monitoring the recent turbulence in the financial markets and troubling indicators at home and around the world with concern for Mr Trump's 2020 chances.

Any administration has to walk a fine line between reflecting the realities of the global financial situation and adopting its historical role as a cheerleader for the American economy. For Mr Trump, striking that balance may be even more difficult than for most.

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For decades, economic performance has proven to be a critical component of presidential job approval. Mr Trump was elected in 2016 promising to reduce unemployment — a task at which he has succeeded — and to bring about historic GDP growth, where he has had less success.

Tony Fratto, a former Treasury Department spokesman in the Bush administration, said he sympathised with the Trump administration for having to choose between answering "honestly or responsibly" or otherwise about the state of the economy, noting that any hint of concern "could be self-fulfilling”.

"So much of the story of the economy is how people feel about it," said Lanhee Chen, a Hoover Institution fellow and former economic adviser to 2012 GOP nominee Mitt Romney. "And that's an inherently a difficult thing to measure."

Highlighting a disconnect between the nation's broad economic indicators and the "personal economies" of voters in swing states is a priority for Democratic candidates and outside groups heading into 2020.

Mr Trump's advisers acknowledge there are few tools at his disposal to avert a slowdown or recession if one materialises: Internal concerns over a ballooning federal deficit, in part due to the president's 2017 tax law, are stifling talk of stimulus spending, and scepticism abounds over the chances of passing anything through a polarised Congress ahead of the election, including a payroll tax cut.

But that has not stopped the White House from exploring ways to make the political cost less painful.

Seeking to get ahead of a potential slowdown, Mr Trump has been casting blame on the Federal Reserve, China and now Democrats, claiming political foes are "trying to 'will' the Economy to be bad for purposes of the 2020 Election”.

If the Federal Reserve would reduce rates and loosen its grip on the money supply "over a fairly short period of time," he tweeted, "our Economy would be even better, and the World Economy would be greatly and quickly enhanced - good for everyone!"

Those actions he is talking about are the sort a central bank would traditionally take to deal with or try to stave off a slowdown or full-blown recession.

Trump aides have accurately described the rising retail sales and the solid labour market with its 3.7 per cent unemployment rate as sources of strength.

Yet factory output and home sales are declining, while business investment has been restricted because of uncertainties from Mr Trump ratcheting up the China trade tension.

Even if the economy avoids a recession, economists still expect growth to weaken.

Federal Reserve officials estimate that the gross domestic product will slow to roughly 2% this year, down from 2.5% last year. During his presidential campaign, Mr Trump had boasted he would achieve long-term growth of 4 per cent, 5 per cent or more.

Additional reporting by AP

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