The Day Trump's Bonanza Is Over

Last spring, Donald Trump and his circle perhaps thought the road was relatively paved for re-election.

On the one hand, it seemed that Trump had dodged the threat of the fatal political scandal. Mueller's long-awaited report on Russia's intervention in the elections had come with a dry and thud; the details were harmful, but, in essence, it had no political impact.

At the same time, Trump was convinced that he could base his campaign on the buoyant economy. It did not matter that his claims of having achieved the best economic record in the history of mankind could easily be refuted; the reality seemed good enough to sell it as a great success story.

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How things change in a few months.

Everyone is aware of the progress of the political trial and, in my case, I don't have much to add, except for one caveat: at every stage of this process, Republicans have proven willing to behave in a surprisingly bad way. Could someone have foreseen the physical attempt of October 23 when they tried to break into the House of Representatives investigation? The point is that, as the fence closes, the Republican Party's response is likely to be more unpleasant than we could imagine.

Understandably, what is attracting less attention is the way in which Trump's economic discourse is falling apart.

In fairness, the general state of the economy is still quite good. Unemployment is very low and job growth continues. In addition, although in the end there is a national recession – and the business cycle has not yet been abolished – there is no certainty that this will happen before next year's elections.

However, there are important parts of the economy that are lagging behind. Manufacturing production declined over the past year; coupled with the weakness in transport and the bad time in the agricultural sector, in practice about one fifth of the economy is in recession. Specifically, employment in the manufacturing industry has been declining in Michigan, Wisconsin and Pennsylvania, states that elected Trump with a very small margin in 2016, giving him the victory in the Electoral College despite losing the popular vote.

In addition, overall growth, although still positive, is definitely slowing down: the "forecasts for the present," which use partial data to calculate what official economic data will say when they are finally released, suggest that we have an economy It grows at the unimpressive annual rate of less than two percent. Since the growth rate of the economy is more important for the elections than issues such as the level of unemployment – unemployment remained more than seven percent when Ronald Reagan won overwhelmingly in 1984 – this is not good news for Republicans

And what is perhaps more important: there is a drastic decline, almost a fall, in business confidence.

This collapse can be seen in several ways. One is the surveys among business executives, who spent the first two years of the Trump administration being very optimistic, but now they have become considerably pessimistic.

We can also see in the bond market a better indicator of economic expectations, than in the stock market. Long-term interest rates tend to be high when investors expect a buoyant economy, during which the Federal Reserve will tighten its belt to prevent inflation; Rates are usually low when investors expect prolonged economic weakness and easy money as far as they can see.

And, as I write this column, the ten-year bond rates plummeted, going from more than three percent over the past year to 1.75 percent. The last time we saw this type of fall was in 2010-11, when investors finally accepted that the recovery from the Great Recession was going to be slow and painful, not a repetition of the television commercial for the Reagan campaign known as “ good morning United States ”.

So what happened to Trump's bonanza? The collapse in confidence began at the end of last year, when there was no doubt that the president was serious about starting a trade war with China; It continued as evidence emerged that the 2017 tax cut was a mountain of smoke and, in short, nothing was done to boost business investment and make at least a temporary increase in overall growth.

However, the truth is that even the pessimists expected the tax cut to do more good and the trade war to do less damage. Why were the results so bad? One response, with which I have agreed, is that, in addition to the direct impact on US exports and companies that rely on Chinese supplies, the trade war has created a harmful uncertainty. Companies that depend on global supply chains will not invest for fear that the trade war will get worse, but companies that may enter the market to replace imports will not invest for fear that Trump will end up recycling.

However, I suspect there is more cloth to cut from. Business interests spent a lot of time denying reality, but now even they are facing the idea that Trump and his team are very strange people who have no idea what he is doing, and the uncertainty that that really implies.

By this I mean that considering that the commercial confrontation with China is the pillar of Trump's economic policy, we are not reassured to know that his warlord, Peter Navarro, has an imaginary friend, a source called “Ron Vara ”, whom he has cited in his books repeatedly but does not exist and whose name, in fact, is an anagram of“ Navarro ”.

Next year's elections should be about the betrayal of the oath that Trump made when he accepted the position. However, being realistic, it also matters that the economy may not be on your side.

* Copyright: 2019 The New York Times Company

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