Unlock the White House View Newspaper FREE
Your guide to what Trump’s second term for Washington, business and the world mean
The writer is director of economic policy studies at the American Institute of Enterprises
If a US president wanted to send the US economy to the recession, then raising tariff fees to levels that are not seen in more than a century and the creation of a de facto embargo in China would be a good strategy.
Engineering a recession was not Donald Trump’s goal when he began his commercial war this spring, but investors were less interested in his motives than in the effects of his policies and the atmosphere of the chaos he created. Net capital values and dollar fell, as bond yields increased – and economists went to the recession hour.
But Trump’s startling decision on Monday to lower the level of Chinese import fees with 115 percentage points sent markets that grow and led economists to extend their chances to a decline. And rightly so. A recession this year is unlikely. Trump looks eager to break up the conflict with China, arguing that he does not want to “hurt” them and praise his “very, very good” relationship with Beijing. Treasury secretary Scott Bessent was even stronger, saying, “None party wants a breakdown.”
Trump also seems to most generally want a de-escalation of his trade war. Kevin Hassett, director of the National Economic Council, said last Friday that two dozen trade agreements “are close to being resolved”, for which he argued that “would be very determined for markets”. And Thursday Trump was talking about a possible trade agreement with India.
Another reason for a more optimistic economic perspective is that in recent weeks, Trump has revealed a willingness to run when markets apply adequate pressure. After adverse market reactions, he decided to “his day of liberation” the so -called reciprocal fees on ice. Although he continued to deal with the chairman of the Federal Reserve Jay Powell, he has now clearly stated that he has no intention of resting it.
As with the pressure of the markets, the bad numbers of Trump’s survey will eventually take it to the center. Remiterally for a president elected mainly to address high prices, his overall rating of net approval – under water in minus 10 percent – now exceeds his trade rating (minus 15 percent) and inflation (minus 26 percent), according to a recent Yugov survey.
Even allowing this week’s call, Trump has increased the average level of effective US tariffs by about a factor of six since taking office in January. It will become even less popular, including among the Republicans, as consumer prices rise. As that cycle unfolds, the increasing anxiety for mid -term elections means that members of his party will find more and more the courage to speak against his tariffs.
Moreover, the trade war is already receiving most of the political oxygen in Washington, endangering its efforts to extend its expired tax cut provisions for 2017. Trump seems sure it will reduce tariff rates before allowing Republican Electoral Deletion and Massive Tax Increase next Year.
Another reason for a more optimistic view is the resistance of the US economy over the past two months. Last month, employers added more net salaries than in January or February this year, and the unemployment rate did not increase.
The monthly salary survey was conducted during the pay period that included April 12, which gives us a window in the performance of the labor market in the first half of the month. This is before most of the damage to the trade war has occurred, but there was no significant increase in new unemployment benefits for the weeks ending April 26, May 3 or 10.
Meanwhile, the fall of the title in the growth of the first quarter GDP was misleading. The last quarter, data from the US Department of Trade show that true consumer spending increased by 1.8 percent by the end of 2024. Fixed business investment overturned its fourth quarter decline, adding 1.3 percentage points to the first trimester. Regarding the first quarter of 2024, the real GDP increased by a very healthy 2 percent.
To be clear, the de-escalation of the Monday does not deserve not to do the champagne. The economy is not outside the forest-the average level of effective American tariffs is even higher than it has been since the 1930s Smoot-Hawley era.
Fewer containers in American ports suggest that at least some shelves will be empty and that holidays for transportation and warehouses are likely. Tariffs will raise consumer prices, reducing real revenue and key customers to reduce expenses. US manufacturers import parts and equipment, so tariffs will reduce their competition and reduce their demand for workers. The massive uncertainty from Trump’s unstable trade policy will be a delay in investment and business expansion.
And my optimism can be set wrong. In the first sign of the problems in difficult economic data, businesses can begin to rest workers and raise their expenses. Small businesses may not be able to weather even a few months of great increase in import costs. Given the disturbing increase in medium -term inflation expectations, the FED may not be able to lower the rates to mitigate the lower income and the poorer demand.
However, Trump’s impatience with de-escalation, willingness to stay, and the resistance of the economy suggest that the US can avoid the worst. This does not mean it will achieve the best. Trump’s trading war remains a stunning act of self-sacrifice that will slow growth and increase unemployment. Avoiding a recession is a perverse and tragic metric of success.
