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Trump’s trade war triggers recession fears

After seeing a boost from taxes and deregulation, businesses and investors are getting spooked by the president’s trade and immigration moves.

By BEN WHITE 06/26/2018 05:02 AM EDT

President Donald Trump could be running a “Morning in America” midterm campaign strategy, bragging about an economy growing as consistently as it has in over a decade with an unemployment rate tied for the lowest level in nearly half a century.

Instead, he’s banking on hard-line trade and immigration policies that could excite his base while undoing economic gains from other Trump policies and nudging the U.S. toward a recession.

On Monday alone, iconic motorcycle manufacturer Harley-Davidson said it would move some production out of the U.S. in response to Trump's tariff fight with the European Union while the Dow Jones Industrial Average tumbled over renewed fears from the president's expected new trade restrictions on China.

It's all part of a high-risk trade and immigration strategy that has many Republicans, business leaders and even Trump’s former advisers deeply worried about both the politics and the economics of the president’s strategy.

“The economy is doing exactly what we thought and hoped it would do based on what the administration was able to accomplish in tax reform and the deregulatory agenda,” Gary Cohn, Trump’s former National Economic Council director, said in an interview. “Both were aimed at stimulating the economy through growth and job creation. And that’s happened in a very positive way. Anything else that derails or confuses the economic agenda is confusing for the system.”

Confusion is certainly coursing through the system now on both trade and immigration.

Trump’s trade battles with Mexico, Canada, the European Union and China could wind up increasing costs for consumers while destabilizing markets and global supply chains, economists warn. They’ve already left the Dow down for the year despite the strong economy.

Wall Street analysts are now ramping up their warnings of a potential recession given Trump's aggressive trade moves. “Our calculations suggest that a major trade war would lead to a significant reduction in growth,” Bank of America Merrill Lynch economist Ethan Harris wrote in a recent research note. “A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”

The impact of Trump's trade moves is starting to show up in economic data. For instance, a survey of manufacturing purchasing managers from IHS Markit — a closely tracked gauge of the factory sector’s health — dipped to a seven-month low of 54.6 last week.

"It is striking that the significant tailwind from corporate tax cuts is now being offset by other forces, most likely the uncertainties associated with the ongoing trade war," Torsten Slok, chief international economist at Deutsche Bank, wrote in a research note on Monday.

And the market disruption may have much further to run, according to some forecasters. “Markets have not taken trade wars seriously enough, we fear, believing for a long time that President Trump has been bluffing over his intentions as a negotiating tactic, and that other countries would back down,” Paul Mortimer-Lee, chief market economist at BNP Paribas, said in recent note. “It looks like both assumptions may turn out to be too optimistic.”

Trump upped the ante yet again on Friday with threats to impose 20 percent tariffs on all imported automobiles, something the industry itself mostly doesn’t want. He also mocked images of children in cages at the southern border as a result of his immigration policy as “phony stories of sadness and grief.” And threatened cutbacks in legal immigration reportedly coming from the administration later this year that risk adding to pressure on employers who already face difficulty filling open positions.

The president pushed back on the Harley news on Monday. “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag,” he tweeted. “I fought hard for them and ultimately they will not pay tariffs selling into the E.U., which has hurt us badly on trade, down $151 Billion. Taxes just a Harley excuse - be patient! #MAGA“

All of this comes against a backdrop that should be dream scenario for Republicans hoping to limit and perhaps even reverse expected Democratic gains in the November midterms. The U.S. economy has been the envy of the world with strong consumer spending, business confidence, rising wages, low unemployment and low inflation. Many forecasts call for close to 4 percent economic growth in the second quarter and perhaps 3 percent for the full year, a level not hit for a full year since 2005.

The biggest risk to it, many analysts say, is Trump himself.

“I detest using the words ‘sweet spot,’ but we are in a very good place in that we are generating very strong growth and households have more money from the tax stimulus and are enjoying income gains. It’s about as good as we can hope for,” Ellen Zentner, chief economist at Morgan Stanley, said in an interview. “The absolute top risk is trade tension and the potential for trade action and really just the lingering uncertainty over trade that can drive businesses down in terms of investment decisions.”

The immigration crackdown even has some Trump supporters in deeply red states worried.

Pete Wiersma, a dairy farmer from Buhl, Idaho, worries about an upcoming labor shortage.

“Most dairies have more cows than what the family can take care of themselves," he said in an interview for this week’s edition of the POLITICO Money podcast. "Most of our dairies in Idaho, we are very dependent on foreign-born workers. It's the engine that makes the machine run. We've really noticed a drop-off in applicants.”

Nationwide, business and consumer confidence remain generally high for now. But business groups from the U.S. Chamber of Commerce to the Business Roundtable have warned that trade fights could derail confidence and slow the economy. It’s less about the direct impact of any single Trump tariff than the overall concern about trade disputes potentially spinning out of control.

“The problem is, how many times can you be on the edge of your seat waiting for the shoe to drop,” Goldman Sachs CEO Lloyd Blankfein said at event in New York last week.

The White House did not respond to a request for comment. White House Council of Economic Advisers Chairman Kevin Hassett told Fox Business Network on Friday that Trump would base his midterm message on the economy and that the trade fights wouldn’t hurt.

“I think that the president is a disrupter, right? He disrupts terrible policies,” he said. “And one of the terrible policies for American workers is that other countries have much higher tariff barriers.”

A Pew research survey out last week suggested Trump’s focus on immigration and trade has GOP interest in the midterms as high as for any midterm dating to 1994, bolstering the president’s view that his political instincts are correct.

Some Republicans, however, are worried about the economic impact of Trump’s actions on trade and immigration as well as on their midterm prospects. Other surveys suggest that while Trump’s base may be strongly with him on both issues, the broader electorate is not, leading to GOP concerns about voters in swing states and swing districts.

A recent Gallup poll found that 75 percent of voters across both parties view more immigration as a good thing. And a POLITICO/Morning Consult poll last month found that 70 percent of Americans want the president to focus on making trade deals while just 14 percent prefer imposing tariffs.

That’s left many Republicans wishing Trump would ditch the harsh immigration and trade policies and focus on the economy and tax cuts.

“Traditionally you would see a level of confidence, economic confidence, that would be good for the majority party,” said David Jolly, a former Republican congressman from swing-state Florida. “In this case the president’s behavior, when it comes to matters of the economy, is very erratic. We’ll see going into November what issues will define the election, but I doubt it will be the economy because even if the president were to try to make the case that it’s the economy, there are just too many other issues confusing voters right now.”

On immigration, some economic conservatives worry that Trump is both potentially alienating swing voters in the midterms with the border separation issue while undermining long-term economic growth with new limits on legal immigration.

POLITICO recently reported that top White House advisers led by Stephen Miller are devising new immigration crackdowns before the election including tightening rules on student visas and exchange programs; limiting visas for temporary agricultural workers; and making it harder for legal immigrants who have applied for welfare programs to obtain residency.

Many economists argue that any efforts to reduce legal immigration will slow the U.S. economy’s growth potential given current demographics showing lower birth rates among the native born and an aging workforce as members of the baby boom generation retire.

The U.S. is currently at 3.8 percent unemployment and government data recently showed more job openings than prospective employees, the first time that’s happened since the Bureau of Labor Statistics started collecting the data two decades ago.

“I always thought the core of Making America Great Again was making the economy great,” said analyst James Pethokoukis of the conservative American Enterprise Institute. “One of the reasons the growth outlook for the future is so low is because of the slowing in labor force growth. That is just a huge headwind.”

“One way to offset that is to make workers more productive and we haven’t figured out how to do that,” he said. “The other is to bring in more people and that is something we know how to do. If they have skills and are entrepreneurial, all the better.”

https://www.politico.com/story/2018/06/26/trump-trade-war-recession-fears-650899

Hmmm... looks like some of the right thinks this immigration and tariff agenda is hurting America. Who Knew?

Strangely quiet thread. I thought republicans coming out against Trump's immigration and Tariff agenda might strike a nerve with some in here. I mean when the financial minds behind the right start to question Donny's wisdom I expected some backlash...

I'll bite. It's certainly possible, but all countries involved thus far seem to realize that a trade war is not in anyone's best interest. For now I view it as posturing and a negotiation tactic, which the article touches on. At the end of the day, I don't think other countries will necessarily back down, but a compromise will be reached in which "everyone wins" to save face.

If there's one topic that is hard to be critical of Trump on it's the economy. Let me make this clear - I am not giving him sole credit. I don't even know if he is the reason for the success, and in all likelihood it could be any number of factors culminating in a positive outcome. Frankly, it's been working, and that's more important to me than knowing which side to thank at this juncture.

Long term effects of his policies remain to be seen, but so far the economy is running just fine imo.

While at the G7 summit in Canada, the President said something to the effect of, "Why don't we all drop the tariffs we have on each other and make trade an even deal?"

He said no one said yes and they couldn't get out of the room fast enough.

Jacobin

Make a point or STFU.

Just haven't been reading as much.

I agree with you, I am not a fan of this move by the President and it can slow down the economy.

I agree that we needed to do something to balance affairs, but I am not sure this was the way to do that.

I suppose that over time, this will hurt China deeper and sooner than it will hurt us due to the large trade imbalance, but no, I am not a fan of this at all.

The trade war is going to cost everyone. This is not going to be pretty. Any so called economic gains that "claimed" to have been made are about to get wiped out big time.

I think its about time someone stood up to these Bullies. Obama didn't have the guts. Bush didn't either. Most people realize it may hurt for a while but we have to do it. Unfair trade policy i
was hurting America's business. Most of the people I know are ready to tough it out.....except the Liberals of course.

Tough it out to what? It aint going to work.

was it the best way to get something done, probably not. But something needed to be done, we have been getting screwed for years in trade deficits. Hopefully this gets people back to the table and something more amicable and equal happens. Right now, noone is going to win.

So you're OK with 507 Billion trade deficites?

Ask that a year from now, then I'll give you an answer. I'd like to know the real numbers because I can't trust anything Trump says. I'd also like to know if that includes everything because we've switched our economy from manufacturing to service. I bet those poor broke Swiss are just buried with trade deficits, I wonder how they make it?...

Just getting on a flight here, thinking out loud.

If Trump really wanted no tarrifs, and it happened then who would win ?? I'm no economist, but it seems to me that every country in the world with cheap labor would instantly get a bigger advantage than they do already ... Having just been lucky enough to go to China for a work trip, I was impressed by the country and the people. They are going through a meteoric change in their society and eventually the gap between wage scales will diminish ... Shanghai had as many high end luxury vehicles as you'd see in any major world city, more than most in fact.

What I've seen repeated over and over by experts I trust, is that China is in far far better place to wait out a trade war than the USA ever is. And it's not like the US got with our closest allies and coordinated pressure on China to have max impact or a unified front (if the tech war is the real heart of the issue).... Oh no, instead Trump ratlles his sabre and pokes all our closest allies in the eye too. Or should that be he rattles his pacifier??!

Anyone thinking this is easy, obvious or simple is deeply misguided.

The Balance of Payments must always net out to zero. This means that if China is exporting half a trillion net dollars to us in exchange for our goods, that they must find alternative means to make up for that difference. To this point that has been taking out treasury notes. Basically, china is helping fund our government.

There are not too many "liberals" in the group below. This is going to hurt the farmers pretty hard

Other enterprises and workers in the U.S., meanwhile, are already feeling the heat from a trade war. China’s retaliatory tariffs have targeted U.S. seafood, soybeans, dairy products, cars, apples, whiskey, pet food and cigarettes, among several other products. Farmers are fearful they won’t be able to sell products they had earmarked for China. They also worry that suppliers from other countries will pick up the valuable market — for good — that they have worked for years to cultivate.

“Soybeans are the top agriculture export for the United States, and China is the top market for purchasing those exports,” Iowa soybean grower John Heisdorffer said in a statement. “The math is simple. You tax soybean exports at 25 percent, and you have serious damage to U.S. farmers.”

China is a big place mate. The big cities where tourist come have a lot of cash funnelling in and it's where their wealthiest live. Yet there are vast regions of their population that are impoverished and earn less than 4k a year. Thing is if they don't like their job they can't do much about it outside of the big cities.

There are lots of great places though and I especially love what they are doing to improve the environment. They are doing some amazing work to reclaim lands from the desert.

No, what they are really doing is draining away our wealth and then putting us in debt to them for the privilege.

It's really only going to hurt the giant corporate farmers and to be honest that could end being a good thing because they are the ones muscling out the local farmers by flooding markets and blocking them from selling.

If you prefer the status quo of losing half a trillion dollars a year to China you need to rethink it.

Those Trillions of dollars of our money have built the Chinese Military that threatens us and our allies in the South China Sea. It will be threatening us much more in the future if we keep feeding it.

The American economy is strong and growing so this is the time to fight these trade deficits.

We have the better hand in this game, play it!

China is enormous!!! Yes. I was 2 1/2 hours outside Shanghai in a city I'd never heard of and a population of 2 million+ . . . The cities are where the money is, that's sort of true all over right?? Londona and big cities where a small house will cost you $1million or Yorkshire village and the same property is $150k .... Sydney or Brsbane versus Tully .... The point is 20 years ago there wasn't Range rovers and Porches and the like dotting the roads. With that change it will eventually permeate the entire economy. But yes, huge tracks of land where there isn't anything. I was surprised how much I liked the country and people. I got a half day to myself and went to a temple where at one point a guy from China grabbed me and took a selfie of us together ! And no English outside of hotels.

I'll repeat they are in way better shape to wheather a protracted trade war than we are ...

Here is the simple problem with Trump - when all you have is a hammer all your problems lol like nails..... Someone pretty smart coined that.

If you don't understand macroeconomics/BOP there isn't much to discuss. Educate yourself instead of buying into partisan rhetoric. A trade imbalance isn't all roses but a smart country will work to manage the problem, chiefly amongst it's workforce. Instead of the US taking the investments to further improve our workforce we think the idea is to reduce the amount of capital goods in the US? It makes no sound fiscal sense. It would be like going to your boss and demanding a pay cut.

According to CNN just now, Trump is going ahead with an additional 200 billion on China.

Gyna will pay for the wall.

Markets are going to love this. He's going to crash this economy, watch.

Asian markets mirror optimism on Wall Street

https://www.apnews.com/27313124e0d84806b60bf6960c29b1a6

SINGAPORE (AP) — Asian markets were mostly higher on Tuesday as overnight gains on Wall Street and the lack of bad news surrounding U.S.-China tariffs boosted sentiment.

KEEPING SCORE: Japan’s benchmark Nikkei 225 added 1.0 percent in morning trading to 22,278.51 and South Korea’s Kospi gained 0.4 percent to 2,295.54. Hong Kong’s Hang Seng rose 0.4 percent to 28,796.77, while the Shanghai Composite index was less than 0.1 percent lower at 2,814.00. Australia’s S&P/ASX 200 shed 0.3 percent to 6,266.30. Shares were higher in Taiwan and Southeast Asia.

WALL STREET: The S&P 500 index rose 0.9 percent on Monday to 2,784.17. It’s the third straight day that the index has climbed at least 0.8 percent. The Dow Jones Industrial Average surged 1.3 percent to 24,776.59. The Nasdaq composite added 0.9 percent to 7,756.20.

U.S. OPTIMISM: U.S. stocks climbed on Monday as investors geared up for buoyant earnings reports in the coming weeks. This added to optimism after a strong jobs report on Friday. The Labor Department said that U.S. employers added 213,000 jobs in June, suggesting that hiring remains brisk although average hourly pay rose just 2.7 percent from a year earlier.

TRADE TARIFFS: On Friday, Washington put in place a 25 percent tax on $34 billion worth of Chinese imports. Beijing retaliated with an equal amount of tariffs on U.S. products, including soybeans, electric cars and whiskey. The development hardly rattled the markets, as investors had weeks to steady their nerves. The U.S. is currently gathering public comments for taxes on 284 more Chinese imports worth $16 billion. It is also identifying an additional $200 billion in Chinese goods for 10 percent tariffs, which the Trump administration has said would take effect if Beijing reacted to higher U.S. taxes.

CHINA INFLATION: China’s inflation rate for June, released on Tuesday, rose in line with market expectations. The National Bureau of Statistics announced that the consumer price index was 1.9 per cent in June from a year earlier, up from 1.8 percent in May. There was little indication of the impact of rising U.S. tariffs on Chinese products.

ANALYST’S TAKE: “Despite Trump suggesting that there are more tariffs to come, the fact that they’ve not been put in place gives markets a little bit of relief. The optimism is temporary. But for now, no news is good news,” said Vishnu Varathan, head of economics and macro strategy at Mizuho Bank.

NERGY: Benchmark U.S. crude rose 44 cents to $74.29 a barrel. It gained 5 cents to settle at $73.85 per barrel in New York late Monday. Brent crude, used to price international oils, added 49 cents to $78.56 per barrel.

CURRENCIES: The dollar rose to 111.14 yen from 110.82 yen on Monday. The euro weakened to $ 1.1743 from $1.1749.

Pfizer delays drug price hikes after talking with Trump

https://www.reuters.com/article/us-usa-t...p-idUSKBN1K0323

Is that you Bill Mahr?

Much like Trump, 40 doesn't seem to understand what a trade deficit is, or how it functions.

I wish.

Cramer: I think Trump is winning the China trade war, and the US stock market backs me up

-President Trump is beating China in a trade war that could soon escalate, CNBC’s Jim Cramer says.

-“I think we're winning," the "Mad Money" host argues. "The market is saying we're winning.”

-On Tuesday, the White House released a list of 10 percent tariffs on $200 billion in Chinese goods.

https://www.cnbc.com/2018/07/13/cramer-t...onfirms-it.html

Cramer is not correct on this-at this time.
Too early to determine a winner in trade war And
the market is going up from the hundred of billions the corps are dumping back in their own stock.
It inflates their stock values which the higher management reap most of the gains.

And we don't have sales numbers from the increased cost of the tariffs. I work in construction and aluminum and steel pipe and supports have gone up about 60% in the last 4-6 months. The cost of a new car is supposed to go up around $1,800. And farmers, ouch....

The following is a piece from a CBS news report-
On June 1, a farmer with 1,000 acres of corn and soybeans expected a $42,000 return. That has dropped to a negative $126,000, according Christopher Hurt, an agricultural economist at Purdue University.

Chinese buyers are canceling orders for U.S. soybeans amid the prospect of higher tariff costs. At the same time, Beijing is encouraging farmers in China to plant more soy, apparently to help make up for any shortfall from the U.S.


And I was all for the trade war when Perot wanted to try it. I don't know if A) this is too much a global economy and B) if the companies actually bring back manufacturing, who is going to do the work?

Oh, ok, YOU say he is wrong. Got it.

Well then, forget I ever mentioned it.

Time to retire and start getting my....ahem...social sec or as the GOP calls it...”entitlements” before Trump takes that away also.

Great.

I can say personally that the increase of the cost of steel has been painful. We built our first robot in 2016. About 6000 pounds of steel. Our current robot comes in around 5000 pounds. It’s cost is almost doubled that of the 2016. That’s directly effecting our profit margin as the contract was negotiated and signed prior to the tariffs being announced, or even much discussed. We can’t go back now and insist on raising the material costs.
It sucks.

Worker wages drop while companies spend billions to boost stocks


Six months after the Tax Cut and Jobs Act became law, there's still little evidence that the average job holder is feeling the benefit.

Worker pay in the second quarter dropped nearly one percent below its first-quarter level, according to the PayScale Index, one measure of worker pay. When accounting for inflation, the drop is even steeper. Year-over-year, rising prices have eaten up still-modest pay gains for many workers, with the result that real wages fell 1.4 percent from the prior year, according to PayScale. The drop was broad, with 80 percent of industries and two-thirds of metro areas affected.

"Now, economic confidence has been good, we're in a strong economy, GDP is growing, but the question has been, where's the paycheck?" said Katie Bardaro, vice president of data analytics at PayScale.

The answer is, largely, in the companies' coffers. Businesses are spending nearly $700 billion on repurchasing their own stock so far this year, according to research from TrimTabs. Corporations set a record in Q2, announcing $433 billion worth of buybacks — nearly doubling the previous record, which was set in Q1.

When a company buys back some of its outstanding shares, the effect is usually to boost the value of the rest of its stock, sometimes making the company appear more valuable on paper. Because many senior executives are paid in company shares, buybacks temporarily boost their pay (as well as other shareholders' portfolios), sometimes at the expense of investments in infrastructure or workers.

The popularity of stock buybacks in the wake of the corporate tax cuts has drawn lawmakers' attention. A group of senators wrote to the SEC late last month, asking the agency to review the rules around buybacks. "The explosion of stock buybacks has funneled corporate profits to wealthy shareholders and corporate executives instead of workers and long-term investments that spur sustained economic growth," they wrote.

The money that has trickled down to workers this year hasn't been permanent, PayScale found. "One of the things we saw is firms are leaning more toward giving bonuses rather than straight pay increases," said Bardaro. "It's flashy, it makes you feel good, but it then doesn't stick around and compound year over year."

Some economists have cautioned against judging the tax cuts too quickly, saying it could take up to four years before their full effects are felt. But for the executives in the top sliver of earners, the windfall has already been record-setting.

Have those workers considered working hard by buying stocks?

Heard on NPR tonight on the way home from work that the EU has worked out a new trade deal with Japan and in a backhanded slap "will continue to pursue trade deals with our friends"

And China is filling the void left from the reduction of purchases of U.S. Soybeans by greatly increasing the purchase of soybeans from Russia