Trump’s Teeter Totter

Or – Never Get Involved In a Trade War With China

In what could only have been predicted by… anybody, the stock market took a dump in response to Trump’s announcement of $60B worth of tariffs on Chinese goods, and the resultant fears of a brewing trade war. Some apologists are deflecting, by pointing fingers at the resignation of Trump attorney John Dowd, or by buying into Trump’s assertion that the tariffs are a punishment for China’s continued theft of intellectual property. But, money talks, and if the latter were a Good Thing, we’d not have seen a 724 point drop in the Dow yesterday.

This negative response to Trump’s economic actions seems to be what 2018 is all about. Last year, Trump did all sorts of stuff that the markets and economy liked. Deregulation, limits on quantity and cost of new regulation, and substantial tax cuts led the way, and the Dow ran up from 18,300 on election day 2016 to 26,600 in late January of this year. Since that high, the Dow has lost over 3600 points, closing below 24,000 yesterday for the first time since November of last year.

Trump may be playing a game here, using threats of tariffs to leverage desired changes, but he’s wrong to equate business tactics with geoeconomic activities. He’s not competing for a contract, or engaged in a zero-sum business conflict. He’s creating uncertainty and exacerbating economic inefficiency.

Uncertainty is poison to businesses, markets, and economies. Business investments are long-term decisions, and they’re difficult enough to analyze even in the most stable of economic climates. Introduce wild uncertainties, and reinforce the untethered orange id reputation, and market and economic turmoil are guaranteed.

I don’t fully share Trump’s detractors’ assertions that he’s an impulsive wild man. The reality is that he shared all these plans during the campaign. The problem, and the reason for market turmoil, is two-fold. First – he didn’t follow through on his Bad-Trump economic ideas last year, sticking instead to Good-Trump deregulation and tax cuts. This may have lulled people into thinking he wasn’t going to fulfill his “bad” promises. Second – people are used to politicians lying, and people wanted to believe that he wouldn’t do the Bad-Trump stuff. Many also expected that he’d be surrounded by advisors who’d temper and fend off Bad-Trump economic decisions.

Alas, it’s clear that Trump is exactly what he advertised himself to be, and believes exactly what he claimed to believe in matters economic. His recent actions show us that he meant all that he said about economic protectionism, and that he won’t be convinced otherwise, and that’s a hope-smasher for many who’ve been cautiously optimistic on that front.

It remains to be seen what he will do next, but his first three months of 2018 have been about undoing a lot of the economic good he accomplished last year. If he wants to continue to pursue his agenda, he needs to recognize that hurting the economy in a mid-term election year is the sort of thing that could lead to a total gridlock of the second half of his Presidential term.

The money people are currently calling the Dems 2:1 favorites to take the House in the mid-term election. And, were it not for strongly favorable math in the Senate (the Dems have 25 sets in contention to the GOP’s 8), I’d expect a similar likelihood for the Senate.

This is not smart politics. This is restoring and exacerbating the concerns that were largely alleviated by Trump-2017.

Some issues Trump has been highlighting – trade imbalances and dumping – are issues that may concern or harm individual companies, but they are either irrelevant or beneficial to the national economy overall.

Others, including IP concerns and trade treaties, could (and much more importantly, should) be addressed without panicking markets and introducing doubt into companies’ strategic decisions. Especially in an election year.

It’s a virtual certainty that, if the House goes over to the Democrats, 2019 will be dedicated to impeachment efforts and nothing else. Trump will have little to no chance of achieving legislative changes of any worth, and will be resigned to engaging in the executive-order nibbling that Obama opted for.

Shortly after Trump’s election, I tallied lists of hopes and fears. Trump-2017 tipped the scale substantially on the hope side, but Trump-2018 is piling stuff on the other side of the scale. The year is young, and there’s plenty more that can be tossed on both sides. But, a teeter-totter that’s in constant oscillation is not a way to run a country, not a way to instill confidence in economic decision makers, and not a way to show a nervous electorate that things are under control. It’s the opposite, and even if Trump manages to pile on a bunch of Good-Trump stuff this year, he’s vindicated the concerns of those who worry about his economic proclivities.

History makes it clear that trade wars are, as Vizzini opined in The Princess Bride, a classic blunder. Trump’s acolytes are, in total abandonment of decades of GOP policy promises, arguing that tariffs and trade wars are Good Things. But, the markets are speaking, and money is thicker than either water or blood. It remains to be seen what actually becomes policy, but damage has been done, and the uncertainty that’s been introduced in the last couple months is not easily eradicated.

We certainly live in interesting times. No matter the assertion that such is a curse is real or apocryphal, it, today, is not a good thing. And, 427 days into Trump’s term, I see no reason to expect that to change.