This week the U.S. Federal Reserve approved a quarter of a percentage point cut on interest rates.
The move came under immense pressure from President Donald Trump to slash rates while simultaneously boasting of the economy’s continued upward trajectory.
Even before the rate cuts did come, Trump said the percentage the Fed was sizing up (and indeed what it ended up passing) wasn’t enough. We don’t say this often, but Trump is right.
To be more precise, rate cuts won’t be enough to save the economy from Trump’s reckless trade policies, though they might cushion the blow. Because of the strong economy, the Federal Reserve raised interest rates four times last year. Now, seeing signs of an economic slowdown — thanks in no small part to Trump’s seemingly random hosing of tariffs on multiple trade partners — rate cuts seemed necessary.
In essence, Trump is shooting himself in the foot here. Not that it’s ever stopped him before.
Still, for all middling approval numbers, all of the virulent and vile discourse, the president and his supporters have had the economy to fall back on. No matter how loathsome the president’s behavior — which over the past two weeks has taken shape primarily in undisguised race baiting — no Republican (or Democrat, if the shoe were on the other foot) would abandon a president riding a rocket economy.
But Trump just can’t help himself. When his “America first” policy shifted over to trade, a mechanism whose workings cannot be summarized on a bumper sticker, the danger became real and the markets nervous, shifting with every tweet or utterance that threatened a tariff or withdrawal from trade agreements.
Factor in the 2017 tax cuts, which have ballooned the deficit — something the GOP used to be concerned about circa 2008-2016 — while not doing a whole lot for the average person, and a downturn is inevitable.
In fact, it’s already here. While American consumer spending remains strong, the businesses and corporations that benefited mightily from the tax cuts aren’t spending that money in the U.S., according to multiple reports, and gross domestic product rates dropped an entire percentage point in the second quarter of the year.
“The data makes one thing clear, the tax cuts did not result in a permanent shift upward in the growth path of the U.S. economy,” Joe Brusuelas, chief economist at RSM in New York told Reuters News.
The U.S. is riding a wave of economic growth that has lasted 10 years. But threatening trade wars and imposing steep tariffs has its cost. Even here in West Virginia, the threat to the economy is obvious. In a recent op-ed, Leah Curry, president of Toyota Manufacturing West Virginia, took umbrage at incomprehensible remarks from Trump implying foreign automobile companies are somehow a national security threat, and imports should be reduced through tariffs. Toyota’s manufacturing plant in Putnam County employs 1,700 workers. Curry said auto tariffs would be damaging to manufacturing and workers and their families in West Virginia and beyond, as well as consumers.
“The disturbing message sent to Toyota’s American workforce is that they are neither appreciated nor valued,” Curry said.
Of course, when he was threatening foreign automakers, it probably didn’t occur to Trump how many people those companies employ through manufacturing in the U.S. The president simply doesn’t seem to know what he’s doing in picking these international fights on trade, while also cutting taxes and leaning on the Fed to bail him out. The president has put a lot of plates spinning, and, without proper restraint or a blitz course in domestic and international economics and trade, they’re going to come crashing down.
Despite a series of blunders (let’s not forget about bailing out farmers with government subsidies from China after tariffs decimated the demand for crops) Trump still has the economy in his corner. The best thing to do at this point would be to back away and let it work through the extension of those who know what they’re doing.