Here Comes the Trump Slump

And he has only himself to blame.

 When he isn’t raving about how the deep state is conspiring against him, Donald Trump loves to boast about the economy, claiming to have achieved unprecedented things. As it happens, none of his claims are true. While both G.D.P. and employment have registered solid growth, the Trump economy simply seems to have continued a long expansion that began under Barack Obama. In fact, someone who looked only at the past 10 years of data would never guess that an election had taken place.

But now it’s starting to look as if Trump really will achieve something unique: He may well be the first president of modern times to preside over a slump that can be directly attributed to his own policies, rather than bad luck.

There has always been a deep unfairness about the relationship between economics and politics: Presidents get both credit and blame for events that usually have little to do with their actions.

  • Jimmy Carter didn’t cause the stagflation that put Ronald Reagan in the White House;
  • George H.W. Bush didn’t cause the economic weakness that elected Bill Clinton; even
  • George W. Bush bears at most tangential responsibility for the 2008 financial crisis.

More recently, themini-recession” of 2015-16, a slump in manufacturing that may have tipped the scale to Trump, was caused mainly by a plunge in energy prices rather than any of Barack Obama’s policies.

But unlike previous presidents, who were just unlucky to preside over slumps, Trump has done this to himself, largely by choosing to wage a trade war he insisted would be “good, and easy to win.”

The link between the trade war and agriculture’s woes is obvious: America’s farmers are deeply dependent on export markets, China in particular. So they’re hurting badly, despite a huge financial bailout that is already more than twice as big as the Obama administration’s auto bailout. (Part of the problem may be that the bailout money is flowing disproportionately to the biggest, richest farms.)

Shipping may also seem an obvious victim when tariffs reduce international trade, although it’s not just an international issue; domestic trucking is also in recession.

The manufacturing slump is more surprising. After all, America runs a large trade deficit in manufactured goods, so you might expect that tariffs, by forcing buyers to turn to domestic suppliers, would be good for the sector. That’s surely what Trump and his advisers thought would happen.

But that’s not how it has worked out. Instead, the trade war has clearly hurt U.S. manufacturing. Indeed, it has done considerably more damage than even Trump critics like yours truly expected.

The Trumpist trade warriors, it turns out, missed two key points. First, many U.S. manufacturers depend heavily on imported parts and other inputs; the trade war is disrupting their supply chains. Second, Trump’s trade policy isn’t just protectionist, it’s erratic, creating vast uncertainty for businesses both here and abroad. And businesses are responding to that uncertainty by putting plans for investment and job creation on hold.

So the tweeter in chief has bungled his way into a Trump slump, even if it isn’t a full-blown recession, at least so far. It’s clearly going to hurt him politically, notably because of the contrast between his big talk and not-so-great reality. Also, the pain in manufacturing seems to be falling especially hard on those swing states Trump took by tiny margins in 2016, giving him the Electoral College despite losing the popular vote.

And while many presidents have found themselves confronting politically damaging economic adversity, Trump is, as I said, unique in that he really did this to himself.

Of course, that doesn’t mean that he will accept responsibility for his mistakes. For the past few months he has been trying to portray the Federal Reserve as the root of all economic evil, even though current interest rates are well below those his own officials predicted in their triumphalist economic projections.

My guess, however, is that Fed-bashing will prove ineffective as a political strategy, not least because most Americans probably have at best a vague idea of what the Fed is and what it does.

So what will come next? Trump being Trump, it’s a good bet that he’ll soon be denouncing troubling economic data as fake news; I wouldn’t be surprised to see political pressure on the statistical agencies to report better numbers. Hey, if it can happen to the National Weather Service, why not the Bureau of Economic Analysis (which reports, by the way, to Wilbur Ross)?

And somehow or other this will turn out to be another deep-state conspiracy, probably orchestrated by George Soros.

The scary thing is that around 35 percent of Americans will probably believe whatever excuses Trump comes up with. But that won’t be enough to save him.

Republicans Don’t Believe in Democracy

Do Democrats understand what they’re facing?

Item: Last week Republicans in the North Carolina House used the occasion of 9/11 to call a surprise votepassing a budget bill with a supermajority to override the Democratic governor’s veto. They were able to do this only because most Democrats were absent, some of them attending commemorative events; the Democratic leader had advised members that they didn’t need to be present because, he says, he was assured there would be no votes that morning.

Item: Also last week, Representative Adam Schiff, the Democratic chairman of the House Intelligence Committee, issued a subpoena to the acting director of national intelligence, who has refused to turn over a whistle-blower complaint that the intelligence community’s inspector general found credible and of “urgent concern.” We don’t know what the whistle-blower was warning about, but we do know that the law is clear: Such complaints must be referred to Congress, no exceptions allowed.

On the surface, these stories may seem to be about very different things. The fight in North Carolina is basically about the G.O.P.’s determination to deny health care to low-income Americans; the governor had threatened to veto any budget that didn’t expand Medicaid. The whistle-blower affair probably involves malfeasance by high government officials, quite possibly President Trump, that in some way threatens national security.

What the stories have in common, however, is that they illustrate contempt for democracy and constitutional government. Elections are supposed to have consequences, conveying power to the winners. But when Democrats win an election, the modern G.O.P. does its best to negate the results, flouting norms and, if necessary, the law to carry on as if the voters hadn’t spoken.

Similarly, last year America’s voters chose to give Democrats control of the House of Representatives. This still leaves Democrats without the ability to pass legislation, since Republicans control the Senate and the White House. But the House, by law, has important additional powers — the right to be informed of what’s going on in the executive branch, such as complaints by whistle-blowers, and the right to issue subpoenas demanding information relevant to governing.

The Trump administration, however, has evidently decided that none of that matters. So what if Democrats demand information they’re legally entitled to? So what if they issue subpoenas? After all, law enforcement has to be carried out by the Justice Department — and under William Barr, Justice has effectively become just another arm of the G.O.P.

This is the context in which you want to think about the latest round of revelations about Brett Kavanaugh.

First of all, we now know that the F.B.I., essentially at Republican direction, severely limited its investigation into Kavanaugh’s past. So Kavanaugh was appointed to a powerful, lifetime position without a true vetting.

Second, both Kavanaugh’s background and the circumstances of his appointment suggest that Mitch McConnell went to unprecedented lengths to create a Republican bloc on the Supreme Court that will thwart anything and everything Democrats try to accomplish, even if they do manage to take both Congress and the White House. In particular, as The Washington Post’s Greg Sargent notes, it seems extremely likely that this court will block any meaningful action on climate change.

What can Democrats do about this situation? They need to win elections, but all too often that won’t be sufficient, because they confront a Republican Party that at a basic level doesn’t accept their right to govern, never mind what the voters say. So winning isn’t enough; they also have to be prepared for that confrontation.

And surely the first step is recognizing the problem exists. Which brings me to the Democratic presidential primary race.

The leading candidates for the Democratic nomination differ considerably in both their personalities and their policy proposals, but these pale beside their differences from Donald Trump and his party. All of them are decent human beings; all would, if given the chance, move America in a notably more progressive direction.

The real chasm between the candidates is, instead, in the extent to which they get it — that is, the extent to which they understand what they’re facing in the modern G.O.P.

The big problem with Joe Biden, still the front-runner, is that he obviously doesn’t get it. He’s made it clear on many occasions that he considers Trump an aberration and believes that he could have productive, amicable relations with Republicans once Trump is gone.

Which raises the question: Even if Biden can win, is he too oblivious to govern effectively?

Paul Krugman: Breaking Up is Hard to Do

As the October 31 deadline for Brexit — Britain’s exit from the European Union — approaches, things are getting wild. The wildness isn’t driven by concerns about Brexit’s long-run economic impact, although the professional consensus is that this will be negative but not catastrophic.

After all, Canada literally spent generations not having an open border with its giant neighbor to the south. In fact, it still doesn’t: NAFTA establishes free trade, not a customs union, so trucks crossing the border still have to present manifests certifying that they’re carrying U.S. or Canadian goods, not stuff transshipped from, say, China. Yet Canada hasn’t turned into a howling wilderness. Neither will Britain, in the long run; the best estimates suggest that once there’s been time to adjust, Brexit might take something like 2 percent off Britain’s G.D.P.

Instead, everyone is focused on the morning after — the first few weeks or months after Brexit (which still might not happen.)

Why is the short run scary? Being a member of the European Union doesn’t just mean zero tariffs on your neighbors, it means more or less frictionless movement of goods. Even goods from outside the E.U. pay tariffs at the port of entry, say Rotterdam, and can move freely once they’re inside Europe. Trucks arriving in Dover haven’t had to present a customs manifest to be reviewed before entering Britain, because there weren’t any customs. So they could just drive through. And the whole British economy has been structured around the expectation that goods could flow freely.

Given sufficient time and preparation, imposing new frictions wouldn’t have to be a huge problem. Britain is a modern country with a highly competent civil service. It could hire lots of customs inspectors, have sophisticated computer systems in place, and so on. Wait times for goods crossing the U.S.-Canada border are minimal, and eventually Britain should look the same.

But Britain isn’t ready. Last week the Times of London (as opposed to The New York Times) reported on a leaked version of Operation Yellowhammer, the British government’s contingency planning for a hard, no-deal Brexit. The expected consequences were scary: shortages of fuel, food, and medicine, a three-month “meltdown” at the ports, and more.

In response, officials in Boris Johnson’s government claimed that the leaked documents were out of date, and that more recent analyses were much less disturbing. And they announced that they would reassure the public today by publishing extracts from an updated version of Yellowhammer.

But plans for the release have been called off, reportedly because after scrambling over the weekend to produce a more benign scenario, officials still ended up with something grim enough to scare the public. This is the opposite of reassuring.

And it’s hard to see any legitimate public interest in keeping Brexit contingency planning secret. Why shouldn’t people and businesses be able to make plans based on the best available information? No, the secrecy is all about politics: the Johnson government doesn’t want the public to know what’s likely to happen.

Now, the truth is that it’s hard to know what will really happen (and the research economist in me is, rather ghoulishly, eager to find out.) I used to know a very good manager who had a sign on her desk that read, “When all else fails, lower your standards.” Can’t Britain mitigate the short-run disruption by making customs checks fast and sloppy? Of course, the outcome also depends on what happens in Calais — and we don’t know much about the E.U.’s contingency planning.

And the whole thing may yet be called off: I know nothing about British politics, but it does appear that there might be a snap general election before the Brexit date, and an opposition victory could put the thing on hold.

Anyway, interesting times.

Trump and the Art of the Flail

Protectionism is worse when it’s erratic and unpredictable.

The “very stable genius” in the Oval Office is, in fact, extremely unstable, in word and deed. That’s not a psychological diagnosis, although you can make that case too. It’s just a straightforward description of his behavior. And his instability is starting to have serious economic consequences.

To see what I mean about Trump’s behavior, just consider his moves on China trade over the past month, which have been so erratic that even those of us who follow this stuff professionally have been having a hard time keeping track.

First, Trump unexpectedly announced plans to greatly expand the range of Chinese goods subject to tariffs. Then he had his officials declare China a currency manipulator — which happens to be one of the few economic sins of which the Chinese are innocent. Then, perhaps fearing the political fallout from the higher prices of many consumer goods from China during the holiday season, which would result from the tariff hikes, he postponed — but didn’t cancel — them.

Wait, there’s more. China, predictably, responded to the new United States tariffs with new tariffs on U.S. imports. Trump, apparently enraged, declared that he would raise his tariffs even higher, and declared that he was ordering U.S. companies to wind down their business in China (which is not something he has the legal authority to do). But at the Group of 7 summit in Biarritz he suggested that he was having “second thoughts,” only to have the White House declare that he actually wished he had raised tariffs even more.

And we’re not quite done. On Monday Trump said that the Chinese had called to indicate a desire to resume trade talks. But there was no confirmation from the Chinese, and Trump has been a notably unreliable narrator of what’s going on in international meetings. For example, he made the highly improbable claim that “World Leaders” (his capitalization) were asking him, “Why does the American media hate your Country so much?”

To repeat, all of this has happened just this month. Now imagine yourself as a business leader trying to make decisions amid this Trumpian chaos.

The truth is that protectionism gets something of an excessively bad rap. Tariffs are taxes on consumers, and they tend to make the economy poorer and less efficient. But even high tariffs don’t necessarily hurt employment, as long they’re stable and predictable: the jobs lost in industries that either rely on imported inputs or depend on access to foreign markets can be offset by job gains in industries that compete with imports.

History is, in fact, full of examples of economies that combined high tariffs with more or less full employment: America in the 1920s, Britain in the 1950s and more.

But unstable, unpredictable trade policy is very different. If your business depends on a smoothly functioning global economy, Trump’s tantrums suggest that you should postpone your investment plans; after all, you may be about to lose access to your export markets, your supply chain or both. It’s also, though, not a good time to invest in import-competing businesses; for all you know, Trump will eventually back down on his threats. So everything gets put on hold — and the economy suffers.

One question you might ask is why Trumpian trade uncertainty is looming so much larger now than it did during the administration’s first two years. Part of the answer, I think, is that until fairly recently most analysts expected the U.S.-China trade conflict to be resolved with minimal disruption. You may recall that after denouncing Nafta as the worst trade deal ever made, Trump essentially surrendered and declared victory, settling for a new deal almost indistinguishable from the old one. Most economic newsletters I get predicted a similar outcome for the U.S. and China.

At the same time, the U.S. economy is slowing as the brief sugar high from the 2017 tax cut wears off. Another leader might engage in some self-reflection. Trump being Trump, he’s blaming others and lashing out. He has declared both Jerome Powell, chairman of the Federal Reserve Board, and Xi Jinping, China’s leader, enemies. As it turns out, however, there’s nothing much he can do to bully the Fed, but the quirks of U.S. trade law do allow him to slap new tariffs on China.

Of course, Trump’s trade belligerence is itself contributing to the economic slowdown. So there’s an obvious possibility for a vicious circle. The economy weakens; a flailing Trump lashes out at China, and possibly others (Europe may be next); this further weakens the economy; and so on.

At that point you might expect an intervention from the grown-ups in the room — but there aren’t any. In any other administration Treasury Secretary Steven Mnuchin, a.k.a. the Lego Batman guy, would be considered a ridiculous figure; these days, however, he’s as close as we get to a voice of economic rationality. But whenever he tries to talk sense, as he apparently did over the issue of Chinese currency manipulation, he gets overruled.

Protectionism is bad; erratic protectionism, imposed by an unstable leader with an insecure ego, is worse. But that’s what we’ll have as long as Trump remains in office.