Staring a possible recession in the face, 73-year-old President Donald Trump continues to play hardball with China, urging the world’s second largest economy to get back to trade talks. Trump wants 66-year-old Chinese President Xi Jinping to give in when it comes to guarantees over intellectual property theft, something so far he’s refused to do. Playing a dangerous game of chicken with China, Trump runs the growing risk of plunging the U.S. economy into recession during the 2020 election year, something bound to turn voters against him. When you look at the glaringly inverted yield curve, where the 10-year Treasury bond is now 30 basis point under the 1-year rate, recession looks imminent. Playing a zero-game-sum with China, Trump hopes to get Xi to fold his cards, agreeing in principle to everything demanded by White House economists Larry Kudlow and Peter Navarro.
Given the global economic slowdown, with central bankers in Europe and Asia cutting rates, Trump plays a dangerous game with China forcing Xi’s hand. “While I am sure they would love to be dealing with a new administration . . . 16 months PLUS is a long time to be hemorrhaging jobs and companies,” Trump said, driving down the Dow Jones Industrial average nearly 400 points. Wall Street finds no reassurance in the current trade war, hoping that Trump can resolve his differences with China sometime soon. “And then, think what happens to China when I win. Deal would get MUCH TOUGHER!” Trump tweeted, playing the zero-sum-game. Wall Street wants stability not the kind of chaos that leaves long-term investors selling off. Trump groped for more economic stimulus last week, talking out loud about more tax cuts. When he realized that’s not going to happen, he was back to square one.
Federal Reserve Board Chairman Jerome Powell has less rabbits to pull out of his hat when the Federal Open Market Committee [FOMC] meets Sept. 17. Trump wants more interest rate cuts but small cuts aren’t going to reverse the current slowdown, possibly leading to recession. If Trump is really serious about finding new stimulus, he’d immediately sit down with Xi and end the trade war. Voters don’t want to hear more about how much the trade war has hurt China. Today’s dismal report about U.S. manufacturing indicates that the trade war has hurt U.S. businesses as much as China. Trump public remarks about the trade war continue to hammer U.S. markets, concerned about an economic slowdown. U.S. Gross Domestic Product looks to fall under 2.0% for Q-3. If Trump doesn’t stop the trade war soon, the 2% GDP could go negative in the near future.
Trump can’t win the trade war on his own, no matter what he says about China. No one wants to see intellectual property stolen by any country, wanting to redress the grievances. “The canary in the mine may be falling off its perch,” said Holland, Pa based-economist Jowl Naroff, referring to the damage Trump’s trade war has caused the economy. But no matter how much of the U.S. or global slowdown is related to the trade war, Trump’s doing nothing yet to reassure markets. Markets reacted poorly to Trump’s weekend increase to 15% of tariffs on $100 million of Chinese goods. Slapping more tariffs on Chinese goods dims the prospects of meeting to settle the trade war anytime soon. Trump knows that if Wall Street continues to sell off, it’s only going to increase the prospects of recession. Manufacturing’s sharp drop off proved that the U.S. economy has weakened.
Running out of ways to stimulate the economy, Trump’s only got the Bully Pulpit now to help improve things. If he talks negatively about China, Trump guarantees that Wall Street will continue to sell off. Hoping to get a better read on China, U.S. Senators Steve Daines (R-Mt.) and David Perdue (R-Ga.) visited Vice Premier Liu He in Beijing to see the prospects for ending the trade war. Liu said he wanted negotiations based on “equality and mutual respect,” something China has not gotten from Trump. With the clock ticking, Trump doesn’t have much more time to turn things around before the slowdown’s irreversible. U.S. and Chinese officials still haven’t scheduled a time to meet on resolving the trade war. Beijing asked Washington to hold off on implementing the latest round of tariffs, only to see their wishes ignored. Scheduling the next round of talks is now up in the air.
Pushing the U.S. and world economies to the brink, Trump could sabotage his chances for a second term. Without the economy doing well, Trump won’t be able to sell voters on getting another four years. With Democrat hopefuls Sen. Elizabeth Warren (D-Mass), Sen. Joe Biden (D-Del.) and Sen. Bernie Sanders (I-Vt.) all slamming Trump on the economy, it’s a matter of time before the numbers catch up with Trump. Thomas Donohue, head of the U.S. Chamber of Commerce, said China isn’t inclined to get back to the table after Trump imposed new tariffs over the weekend. “Uncertainty leads to eventually no good,” said Donohue, remarking about how tariffs damage markets. Unless Trump ends his bluff with China quckly, he going to push the U.S. economy into a recession. Like the Titanic, the economy won’t turn around when Trump snaps his fingers.
