The US is being pushed towards recession – and it's totally unclear whether Trump understands what he's done

Everywhere the president's trade war touches, support for his re-election evaporates

Max Burns
New York
Monday 19 August 2019 16:20 BST
Trump's economic adviser dismisses recession fears

If Donald Trump’s recent tweets are any indication, Federal Reserve Chairman Jerome Powell shouldn’t expect an invitation to Mar-a-Lago any time soon.

Chairman Powell landed on Trump’s enemies list following the Fed’s recent decision to cut the benchmark interest rate by 25 basis points, or 0.25 per cent. This is an attempt to safeguard the longest economic expansion in American history – a staggering 121 consecutive months, dating back to June 2009.

Trump voiced his outrage on Twitter, saying Powell’s Fed “called it wrong every step of the way” on interest rates. Continuing his Twitter tantrum, the president threw off decades of established economic doctrine to confirm his support for a “weak dollar” backed by more – and more aggressive – rate cuts.

Trump’s support for a weak dollar undermines the latest statements from Treasury Secretary Steve Mnuchin, who recently attempted to reassure global investors that the United States won’t dive into a currency depreciation spiral. The world is looking to the United States for clarity, but the message from Washington is anything but clear.

Trump’s motives are transparent and, as usual, self-serving. As American farmers, industrial workers and consumers start feeling the bite from his extended trade war with China, the president is caught in a bind. His pride (and campaign messaging) prevents him from backing off. But there are increasing signs of tariff-related unrest among voters in states key to Trump’s re-election strategy.

Major agricultural firms like John Deere are already missing earnings estimates and anticipating further reduced profits as a result of Trump’s spiraling trade battle with Chinese Premier Xi Jinping. At the same time, prices on imported products like dishwashers and home heating systems are rising. According to Jeffry Bartash at MarketWatch, American consumers looking to buy a new home heater ahead of winter can expect to pay, on average, $150-250 more than in prior years.

Soybean farmers tasked with marketing America’s second most valuable cash crop are facing massive disruptions as China – which buys nearly 25 per cent of US soybean production – sits this harvest out. American farmers exported over $24 billion worth of our crops to China in 2014. This year the number is hovering around $9 billion, and profits are expected to fall further as soybean prices tumble.

For farmers and factory workers in Ohio, which Trump won by 8 points in 2016, the shock of a Chinese trade war has rattled a core base of Republican support. A recent Ohio Quinnipiac poll shows how sharply voter sentiment has inverted: Trump now trails Democrats like Joe Biden by 8 points.

The picture looks worse in states dependent on a healthy trade with China. In agriculture-rich Iowa, which Trump won by a solid 10-point margin in 2016, he now trails the current Democratic frontrunner by 6. Everywhere Trump’s trade war touches, support for his re-election evaporates. For a candidate as obsessed with polling as Trump, these numbers must feel devastating.

Cornered by China’s recent decision to suspend agricultural purchases in the United States – potentially reducing to $0 that already meager $9 billion in export value – Trump’s only hope is that he can cajole the independent Fed into cutting interest rates and providing a short-term boost to the economy. The only problem? It doesn’t seem like Jerome Powell is susceptible to White House bullying.

If Powell bent the knee to Trump and reduced interest rates today, American consumers would likely see a temporary boost. It would be cheaper to borrow money for a mortgage, for example. The lower rates would also make American exports cheaper abroad, which Trump hopes will spur corporate profits and, indirectly, provide a jolt in hiring that would reduce an already low unemployment rate.

But Powell, unlike Trump, has the long game in mind. Lowering interest rates doesn’t just make American exports more competitive – it raises the price of importing goods from overseas. That means companies already hit by Chinese tariffs and a growing trade war would also end up paying more for the raw materials that make their finished products. It would also encourage borrowing and spending at a time when Americans have a record amount of personal debt.

As a trade war with China and runaway Republican spending risks pushing the United States into its first recession in over a decade, it’s unclear whether Trump fully understands the damage his trade-policy-by-Twitter is causing to American consumers.

Through bluster and foolish pride, President Trump has walked himself – and the United States – onto a thin economic branch. The Federal Reserve and Wall Street experts have so far proven unwilling to join him. We should all hope their independence holds firm.

Max Burns is a Democratic Strategist who frequently appears on Fox News, Fox Business Network, and Bloomberg Radio. Follow him on Twitter at @themaxburns

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