President Donald Trump made many promises during last year’s election campaign. Investors and business leaders enthusiastically applaud some of them, such as tax drop and regulations, and were cautious to others, such as tariffs and immigration reduction.
But when Trump won the elections, there were hardly any signs of that ambivalence: the prices of the actions shot up, as well as the business optimism measures.
The investors of that time offered a simple explanation: they believed that Trump, backed by a congress controlled by the Republicans, would fulfill the parts of their program that they liked and would reduce the most disturbing policies, such as tariffs, if the financial markets began to be scared.
It is increasingly clear that they were wrong.
In his first weeks in office, Trump has made tariffs the central axis of his economic policy, promising, and sometimes imposing, strong sanctions both allies and adversaries. He has threatened to stop the subsidies that companies had come to depend. And he has enhanced Elon Musk’s efforts to cut the federal bureaucracy, potentially leaving tens of thousands of federal workers and cutting billions of dollars in subsidies and government contracts.
The most surprising, at least for Wall Street optimists: until now, Trump has not been intimidated by the signs of cracks in the economy or by the collapse of actions prices.
“You have to rule out the idea that the Government is going to stop by a self -imposed restriction of the market,” said Joe Brusuelas, chief economist of the RSM Accounting Company.
Indeed, on Tuesday, when the financial markets seemed to settle after days of strong losses, Trump assaulted another blow, intensifying their commercial war with Canada. The main stock market indices fell sharply as the news was known, and the S&P 500 ended the day with a decrease of almost 1 percent. Finally, Trump reversed his decision after Canada said he would eliminate a surcharge on the electricity that had caused the president’s threats.
Far from being amilan in the face of warnings that their policies are causing economic damage, Trump has accepted it in recent days; On Sunday he told a Fox News interviewer that economic turbulence reflected a necessary “transition period” and refused to rule out a recession.
On Tuesday, when asked about the instability of financial markets, Trump told journalists: “The markets are going to go down and go down but do they know what?, We have to rebuild our country.”
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That followed Karoline Leavitt’s comments, the White House press secretary, who said that the reaction of stock markets was a “photography of a certain moment.”
“Look, the president is unwavering in his commitment to restore US manufacturing and world domain and I think he has redoubled his bet with his new statement” about Canada’s tariffs, he said.
Other members of their government have echoed that message, describing the increases in prices induced by tariffs and public spending cuts as a hard but necessary medicine to restore the health of the economy.
Scott Besent, secretary of the Treasury, told the CNBC last week that the economy needed a “detoxification period” after becoming “addicted to this public spending.”
Most economists, however, rule out the idea that the economy need that shock therapy, or that Trump’s policies were useful in case.
“It is an effort to give the pain and uncertainty that we are going through at this time a broader meaning and encourage us to reach a better place,” said Nathan Sheets, an former treasure official, who is now the global chief economist of Citigroup, about the new Government’s new message. “But the most important question is if we are really going to get to a better place.”
The answer, according to Sheets and others, is “no.” Tariffs are likely to raise prices and slow down growth. A stricter immigration policy could do the same. Government dismissals could increase unemployment, while federal investments in research and development could cause the US economy to be less productive in the long term.
“It seems that we are going to create pain, see what is not cured and then treat the injury,” said Tara Sinclair, economist from George Washington University.
A ‘shock factor’ for companies
Economists do not agree on how much damage the policies of the new government have caused. The economy began the year with a significant impulse, and most predictors believe there is enough mattress to avoid a recession, if Trump does not even more intensify their commercial wars.
But the uncertainty of the last six weeks has been enough to cloud what until recently seemed like a positive economic landscape. In surveys, consumers claim to feel less optimistic about their finances and be more concerned about the rise in prices. Companies have also lost confidence and are delaying their investment decisions.
“In the business community we are observing a shock factor,” said Thomas Simons, chief economist for the United States of the Jefferies investment banking company. Companies are slowing down and postponing the purchase of products and equipment, Simons said. “Certainly, it seems that right now one would like to take a break and let it settle part of the dust before making that decision.”
Warehouses on short -term hardships
The idea that Americans must withstand short -term hardships to obtain long -term benefits is not totally new for Trump. In his first term, he praised the farmers who were the collateral damage in his commercial war with China, describing them as “patriots” that made a sacrifice for the greater good.
But Trump, in his first term, also tried to compensate for that damage with billions of dollars in farmers’ aid.
This time, the costs associated with Trump policies are potentially much broader, and occur in a very different economic context, in which Americans have been marked by years of high prices and high indebted costs.
Consumer surveys show that Americans have begun to anticipate higher prices as a result of tariffs. That could raise a political problem to Trump, and also an economic one: if consumers wait for faster inflation, it could be more difficult for those responsible for the Federal Reserve policies counteract a slowdown of the economy through lower interest rates.
Some Federal Reserve officials express their concern that the combination of a trigger for growth and persistent pressures on prices can put the central bank in a tighten.
“This is a stagning impulse,” he said last week in an interview Austan Goolsbee, president of the Bank of the Federal Reserve of Chicago. “There is no generic response to what should be done.”
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Besent and other members of the Trump government have argued that the economy they inherited was not as strong as it seemed. In a speech pronounced in Washington last month, he argued that, in essence, growth was being underpinned by public spending, and that it was necessary to disapprove the economy of that support.
“The excessive dependence of the previous government of excessive public spending and an authoritarian regulation left us with an economy that may have exhibited some reasonable metrics, but which was ultimately fragile under the surface, and was heading towards an unstable balance,” he said, according to Reuters.
But Jared Bernstein, who was president of the Council of Economic Advisors of former President Joseph Biden Jr., said Besent and other members of the Trump government simply looked for someone to blame now that economic data have begun to get worse.
“They inherited an economy that was and remains the strongest of all advanced economies, and have squandered their inheritance in just six weeks with a political chaos that is sinking the confidence of companies and consumers along with the markets,” said Bernstein.
Government statistics support the idea that the economy was solid when Trump took possession, even by excluding the role of government. Public spending played a key role in shoring the economy during the Covid pandemic, both at the end of Trump’s first mandate and at the beginning of the Biden government. But Biden’s mandate fell, while the hiring, investment and expenditure of the private sector remained healthy.
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