Is Trump killing his own re-election?

The Fed (Federal Open Market Committee) is meeting this week to review and set or reset monetary policy.  I don’t know whether it should increase its policy rate, leave it the same or reduce it. https://www.adamsmith.org/blog/returning-to-currencies-with-hard-anchors  The market expects a one quarter percent reduction in the rate.  President Trump is quoted yesterday as saying it should be reduced more than that. WSJ: the confusing Fed

There are several problems with Trump’s statement. One is that if the Fed reduces the rate, its claim to be reacting to the data and its mandate is undercut by the President’s interference. Is the Fed doing what seems best or responding to political pressure?

But if the U.S. economy is heading South, as it may be, it is probably because of the damaging effects on the U.S. and world economies of Trump’s trade wars with almost everyone but especially with China. Trump’s tariffs have imposed significant costs on the American consumers who pay them with higher prices for targeted imports. More importantly, his trade wars have injected significant uncertainty into the continued viability of the global supply chains that have helped lower costs here and abroad and increased world output.  Their retrenchment is lowering world income and pushing many economies, including potentially the U.S. economy into recession. A U.S. recession a year from now will seriously damage Trump’s chances of reelection.

Trump’s wars on trade seem to be motivated by his mistaken belief that the U.S. trade deficit with China, Germany and others reflects unfair trade practices on their part. His misuse of a national security concern to impose protectionist tariffs and restrictions on foreign competitors (protecting inefficient U.S. industries we would be better off allowing competition to shrink) seems motivated by vote buying. https://wcoats.blog/2018/09/28/trade-protection-and-corruption/  The result is a reduction in our income and potentially his electoral defeat. Our trade deficits largely reflect the use of the U.S. dollar in international reserves (which require a deficit to supply them) and our large and growing fiscal deficits (much of which is being financed by China and other trade surplus countries). Trump’s abandonment of government spending restraint is the cause of those twin deficits https://nationalinterest.org/feature/who-pays-uncle-sams-deficits-26417

It’s not that we don’t have real issues with some of China’s trade related practices, but Trump’s approach to addressing them is not productive. Rather than working with the EU and Japan and others who share our concerns to confront China together, he is attacking all of them with threats of more tariffs. Rather than strengthening the WTO, he is weakening it. Rather than using the Trans Pacific Partnership (a significant advance in modern trade agreements) to encourage China to adopt its rules, Trump withdrew the U.S. from the agreement– a huge mistake. The real question is how much more damage will Trump inflict on the world economy before he surrenders and declares victory or is voted out of office. https://wcoats.blog/2019/06/07/the-sources-of-prosperity/

About wcoats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My most recent book is One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.
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2 Responses to Is Trump killing his own re-election?

  1. Jim Colt says:

    Warren- I must say that I am disappointed that you have not commented at all upon the failure of the Democrat House of Representatives to act upon Present Trump’s successful renegotiation of NAFTA to the satisfaction of all three North American members. Mexico’s legislature has already ratified Trump’s USMCA agreement, and Canada is on board as well. Given Pelosi’s hysteria about Trump, one can only assume that she would not have ignored the USMCA agreement if it reflected badly upon Trump’s accomplishments. I wonder if the world would be better served if the opponents of the changes afoot (in trade, BREXIT, etc.) would spend less time lamenting Mr. Trump’s flaws and focus more effort upon taking care of business. Regards- Jim

    • wcoats says:

      Yes Congress should pass it even though it is not really an improvement on NAFTA. But Trump’s approach to this agreement as well as the others is terrible. Bullies don’t always win in the long run and when you are the USA bullying is particularly unseemly.

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