The Recession Bogeyman has entered the White House.
We’re not in an actual recession, but the specter of one has spooked President Trump, who surely knows his reelection odds depend on a strong economy. Warning signs such as an inverted yield curve and a downturn in manufacturing suggest trouble ahead, and 40% of economists in one survey predict a recession by 2020.
Trump dismisses the doomsaying, arguing that “our economy is the best in the world.” He’s been sending economic advisers Peter Navarro and Larry Kudlow out to news networks to say everything’s great and predict another year of rising stock prices. But Trump and his minions protest too much. Their entreaties reveal worry over the economy and Trump’s reelection prospects, rather than confidence.
Trump could help his own cause, if he wanted to. Here are four things he could do to reduce the odds of a recession or push it off until he goes up for reelection in November 2020:
Resolve the trade war with China. Escalating tariffs and other punitive measures between these two giant trading partners is the biggest threat depressing the U.S. economy right now. Trump may think his bluffs to impose draconian tariffs are harmless if he doesn’t really mean it and they don’t go into effect. But he’s wrong about that. The tariffs he has already announced are on track to cost the average U.S. household around $1,000 per year. Other tariffs he has threatened could double or triple that toll. Business spending is flat-lining because of the disruption Trump is causing. Consumers will soon feel the pinch, when the first new tariffs on imported Chinese consumer products hit on Sept. 1.
China has apparently stopped negotiating with Trump, indicating they’re not likely to make the concessions he demands any time soon. And Trump may feel that making his own concessions will make him look weak. But his choice may be looking weak by making a deal with China, or losing in 2020. If the trade war is still hot by this time next year, Trump could be sunk.
Can the threats. Trump is also teasing trade wars with Europe and Japan, whose automotive imports he wants to slap tariffs on. If he does that, the effect on the U.S. economy could be worse than the China trade war, pushing up the cost of automobiles and killing auto-industry jobs. Trump should drop his trade threats altogether and get out of the way. He’d have a stronger economy to brag about if he would stop trying to suppress it.
Stop harassing the Federal Reserve. Everybody knows Trump has tried to set up Fed Chair Jerome Powell as his fall guy if the economy does tank. Trump complains repeatedly about the Fed keeping interest rates higher than in other countries, including many where they’re below 0. What Trump fails to comprehend is that the Fed has way more credibility with investors than he does. If investors begin to lose confidence in the Fed, or believe it is bowing to political pressure, financial markets could come unmoored and unresponsive to Fed stimulus measures. That would be disastrous.
Put together a credible infrastructure bill. If there is a recession, a sound set of new infrastructure spending would be a timely antidote. But it won’t happen with Republicans and Democrats bickering in the usual manner. Democrats would probably make onerous demands in exchange for their support, such as a rollback of some of the 2017 Trump tax cuts for businesses and the wealthy. Trump would only get an infrastructure bill if he made concessions to get Democratic support. That could take months to hammer out. It would also take presidential leadership—and the president’s bully pulpit—to pressure Congress to act when needed.
Trump can talk up the economy publicly while quietly making contingency plans, if he’s wrong. What he probably can’t do is blame everybody else for a recession, if it happens, and expect that to fix anything. He’d be better off saying and doing less than prosecuting trade wars and trying to manufacture unconvincing villains.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman
Confidential tip line: [email protected]. Encrypted communication available. Click here to get Rick’s stories by email.
Read more:
Elizabeth Warren is a prophet of doom
Why Trump is afraid of the NRA
Democrats are attacking the wrong companies
Everybody running for president is rich
Medicare for all won’t work. This might
Read the latest financial and business news from Yahoo Finance
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.