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The economy does not make Trump invincible | TheHill – The Hill

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Bill ClintonWilliam (Bill) Jefferson ClintonBuzzFeed makes case for Anthony Weiner as most consequential politician of 2010s Chelsea Clinton thanks GOP congressman for tweet depicting her father’s ‘quick reflexes’ Karl Rove argues Clinton’s impeachment was ‘dignified’ MORE aide James Carville once famously remarked that when it came to winning elections, it’s “the economy, stupid.” 

This dictum has led many observers to surmise that the currently strong U.S. economy makes President Trump a shoo-in for re-election in 2020. But what these observers overlook is that between now and November 2020 there can be many an economic slip between cup and lip. This would seem to be especially the case at a time when the IMF estimates that 90 percent of the world’s economies are now already experiencing slowdowns.  

This was the lesson that John McCainJohn Sidney McCainHill editor-in-chief: Iowa is make-or-break for Klobuchar Trump’s Dingell insults disrupt GOP unity amid impeachment The Hill’s 12:30 Report — Presented by UANI — Pelosi looks to play hardball on timing of impeachment trial MORE (R-Ariz.) painfully learned as the U.S. and global economies took a nosedive on the eve of the November 2008 presidential election, after having started the year on a seemingly sound footing.

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To be sure, if the election were held today, the strong U.S. economy would make Trump a formidable candidate for reelection.  

U.S. unemployment is now at a fifty-year low, the economy is growing at a satisfactory rate, wages are rising, and the U.S. stock market is beating record levels on an almost daily basis. While these achievements might have been made at the cost of incurring a large budget deficit and a ballooning public debt that might have mortgaged our economic future, such matters all too likely will be of little concern to the electorate.

Unfortunately for Trump, it is not today’s U.S. economy that is going to be the determining factor in the 2020 election. Rather, it is how the U.S. economy and financial markets perform in the months immediately running up to November 2020. In this context, it would seem that there are all too many reasons to think that in six months’ time the U.S. economy could be looking decidedly less rosy than it does today. 

Today, all too reminiscent of the start of 2008, a dark cloud hangs over the U.S. and global economies. That cloud is a global credit and asset price bubble of epic proportions that has been spawned by a decade of ultra-easy money by the world’s main central banks. 

One indication of this bubble is the fact that global debt to GDP levels today are significantly higher than they were at the start of 2008. Other indications are that U.S. and global equity valuations appear to be stretched, housing bubbles have re-appeared in a number of important economies and an alarming amount of credit has been extended to non-creditworthy borrowers around the globe at historically low interest rates.

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Nobody can know when the global credit and asset market bubble will burst or what event will cause it to burst. But with the abrupt change in the global economy over the past year, it would be rash to dismiss totally out of hand the possibility that the global credit bubble could burst well before the November election. 

This especially seems to be the case at a time when the Chinese economy shows clear signs of losing momentum, the German, Italian, and U.K. economies all appear to be on the cusp of recessions and the Indian economic growth rate has halved in the context of increased domestic political strife. It also seems to be the case at a time when President Trump has a fragile truce in his trade war with China and at a time when he is threatening to impose additional import tariffs on an already weak European economy. 

Further heightening the risk that the global credit bubble might burst before November 2020 is a deteriorating global political landscape. It is not only the fact that geopolitical risks in North Korea and Iran have increased or that the Middle East is once again in turmoil. It is rather that social protests seem to be gaining momentum in countries as disparate as Chile, Colombia, France, Hong Kong, India, Iran and Venezuela. Worse yet, there is every indication that this social unrest is spreading from one country to another.

Past experience, including that in 2008, should inform us that when credit and asset price bubbles burst, the economic and financial market fallout could be disruptively large. The 2008 experience should also remind us as to how interconnected the world’s economic and financial system has become. This has to raise the possibility that much in the same way as in 2008 the Lehman bankruptcy spilled over from the United States to the rest of the global economy, a systemic crisis abroad in 2020 could very well spill back to our shores. 

Trump could very well be lucky in 2020 and have the global credit bubble burst after his reelection. But this is far from a certainty. It would seem to be equally possible that this time next year we will look back and ask ourselves how we could have missed so many early economic warning signs about real trouble ahead in the global economy. These signs might include the recent sovereign debt default in Argentina, the rising private credit defaults in China and Turkey, the We Work financial fiasco and the abrupt economic slowdown in China and Germany, the world’s second and third largest economies, respectively.

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

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Economy

Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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Economy

China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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