If there’s a recession, Trump deserves it - Yahoo Finance

President Donald Trump reacts at the end of his speech at a campaign rally, Thursday, Aug. 15, 2019, in Manchester, N.H. (AP Photo/Patrick Semansky)

President Donald Trump thinks the economy is booming, thanks entirely to him.

In the real world, stocks are selling off because investors fear a recession, and businesses are closing the shutters for a storm.

The economy flashed the strongest sign of an impending recession in more than a decade on August 14, when short-term interest rates on Treasury bills rose above rates for long-term bills. This so-called inversion of the yield curve is a reliable sign a recession is coming, though the downturn doesn’t begin until 21 months after the initial inversion, on average.

The yield curve uninverted the same day it inverted, and it’s completely possible the warning sign was an anomaly and nothing more. But it’s clear the economy is slowing, even if it doesn’t deteriorate to recession levels. The New York Federal Reserve estimates current GDP growth at just 1.8%, well below last year’s 2.9% and the 4% growth Trump said he could deliver.

If a weakening economy dents Trump’s re-election odds, Trump deserves it. Trump, proud to be America’s first businessman-president, has perpetrated an incoherent economic policy that mixes some worthy goals with misguided means of pursuing them. Trade is Exhibit A. Trump is right about Chinese trade abuses. The Communist government subsidizes huge national companies, giving them an unfair competitive edge against U.S. firms. China steals western technology and erects unfair barriers for foreign businesses hoping to operate in China.

But Trump has rejected mainstream advice on how to address these problems —such as working through the World Trade Organization and banding together with allies — because he and a few sycophants think tariffs are the way to go. He’s wrong about that. Trump’s tariffs are a tax on American business and consumers, and if they hurt the Chinese economy, it’s only after they hurt the U.S. economy first. JP Morgan Chase estimates Trump’s tariffs will cost the average US household $1,000 per year, and more if Trump further hikes tariffs as promised.

Big firms such as Deere & Co. (DE), Caterpillar (CAT) and Cisco (CSCO) have been highlighting the damage Trump’s tariffs are doing, while American farmers are reeling from the loss of business due to a de facto Chinese boycott. Trump is in denial. He keeps saying we have the best economy ever, while lying about who pays the tariffs. Economists and CEOs consistently say Trump’s own trade policy is the biggest threat to the economy. Trump’s response: More tariffs.

Impact of Trump’s deregulatory push

The tax cut Trump signed in 2017 was supposed to generate a long burst of business investment and spending that boosted household incomes. It never materialized. Business investment after inflation grew by 6.4% in 2018, but that was only the best performance since 2014. Investment growth has now slipped to 2.7%. The sharp cut in the business tax, meanwhile, has slashed government tax revenue, with this year’s annual deficit likely to be well over $1 trillion. That’s a recession-sized deficit.

Trump’s deregulatory push is probably helpful, except where it degrades environmental protections or worker safety. And Trump has done nothing to tackle rising health care costs, which are the biggest financial burden for many middle-class families.

Trump might get lucky and avoid a recession. The job market remains strong and consumers are comfortable spending money. The New York Fed places the odds of a recession within 12 months at 31%. The irony is that the economy might be stronger if Trump had done nothing after taking office — no tax cut, no trade war, no boastful tweets. Trump can still call off the trade war, but that would be a tacit acknowledgement of failure requiring more humility than Trump may possess. We may soon find out if Trump’s desire to get re-elected outweighs his pride.

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: rickjnewman@yahoo.com. Encrypted communication available. Click here to get Rick’s stories by email.

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