Derek Thompson: Trade wars are not good, or easy to win
On Monday, the president said the Federal Reserve should drop interest rates a full point, in addition to a quarter-point cut in July. The Washington Post reported Monday that the administration is considering trying to cut payroll taxes, a move to stimulate the economy that the Obama administration used in 2011 and 2012. (That would require Congress’s say-so.) Last week, Trump claimed that the media were trying to manufacture a recession. (The press doesn’t actually have that power and, even if it did, seems highly unlikely to use it given how vulnerable the already battered news industry would be in a new recession.) On Monday, Trump added that Democrats are rooting for a recession so that they can win the presidency.
That accusation, though unfounded, cuts straight to Trump’s fears. No president wants to see the economy shrink on his watch, since that’s often lethal both to legacies and to reelection prospects, but it’s an especially pointed fear for Trump, who ran for office arguing that with his business experience, he was especially well suited to running the economy. He derided the Obama administration as a bunch of amateurs who didn’t understand numbers or know how to negotiate, and he promised that, under his leadership, there would be 4 percent annual growth, and that he’d create 25 million new jobs.
Two and a half years into his term, economic growth hasn’t reached 4 percent in a single quarter, and about 6 million new jobs have been created, which is well short of what he promised and even short of growth under Barack Obama. These shortfalls aren’t necessarily Trump’s fault: As many in the press, including me, pointed out during the 2016 campaign, presidents have relatively little control over the economy. But Trump made outlandishly unrealistic promises, and voters may hold him to account for them.
A president does have a few levers to move the economy, however, and Trump’s decisions on that front have been dubious. The president pushed through a large tax cut in December 2017, his greatest legislative achievement, and while that likely did stimulate the economy, it proved a political flop and did not prevent the current turmoil.
One reason for the muted success of the cuts is that Trump is also working another of his levers at cross-purposes. The president does have a remarkable amount of control over trade policy, and by installing a series of tariffs and sparking a trade war with China, Trump has put a hobble on the economy. Despite what his aides insist, the costs of tariffs are borne by Americans, and while some of his punitive measures hurt other countries, including China, there’s no good way to prevent global economic stress from washing back onto American shores.
Trump could, of course, reverse course on the tariffs and sue for peace in the trade war. He’s already delayed a tariff on some electronics and clothing imported from China until after the Christmas shopping season. But backing down from the aggressive trade stance would pose problems of its own. Doing so would be turning his back not only on another of his core promises from 2016, but also on decades of conviction about the importance of a protectionist approach to China and trade more broadly. Trump can’t afford to continue the trade war, but he can scarcely afford to end it either.