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Your Guide to Washington and the World’s 2024 US Election Means
In his first speech to Congress since launching a turbulent second term, US President Donald Trump proudly insisted on Tuesday night that he was “just starting out.” It portends a bad for the world’s largest economy. Optimism among businesses and investors as businessmen wins in elections is rapidly fading. After the president confirmed tariffs in Mexico, Canada and China on Monday night, the S&P 500 first erased all profits since the November poll. Consumer trust has plummeted. Manufacturers have reported sharp declines in new orders and employment, with bearish investors far above the historic average.
Uncertainty is clouding data and forecasts. Still, it is clear that the president has wasted a decent economic inheritance. Not long ago, price pressures waned, and the US Federal Reserve was in the cusp of a stable interest rate reduction cycle, with the S&P 500 gliding upwards. This is no longer true.
The melancholy turnaround is a product of the administration’s pursuit of on and off import duties, a chaotic policy agenda. While the White House may believe there is a plan, American economic exceptionalism is a collateral loss, from relentless consumer spending and booming stock markets to reputation for reliable economic governance.
Personal spending – the recent breakwater of US growth – fell the most in January in nearly four years. With inflation in the pandemic era still not completely disappearing, the reality of the tariff plan that will raise Trump prices is rising, and consumer expectations for future inflation are rising. The Fed has so far dealt with future price pressures by pending interest rate cuts, and borrowers have faced higher credit costs. Elon Musk’s plans for public sector employees are already set to raise unemployment in the cooling labor market.
The animal’s mind is also under pressure. Perhaps naively, many companies and investors expected import duties to be merely a negotiation tool. But Trump also believes tariffs are “protecting American jobs.” After the latest salvo for North American neighbours, the president offered the carmaker a month’s reprieve on Wednesday, and was about to expand it on Thursday.
The unpredictability of customs duties calculations, inversions, and measures against other trading partners makes it impossible for businesses to plan. Retaliation measures also hurt exporters. The broader flood of policy announcements (some of which had a significant geopolitical impact) adds to the decision paralysis that executive offices and traders face.
It has also been tested for its belief in the US economic and financial institutions. Trump met regulatory bodies with his chum. The Fed’s independence is a continuing concern. And then there are some odd economic ideas, from building cryptocurrency reserves to the rumoured “Mar-a-lago Accord” to lower the value of the dollar. Some analysts point to the dollar’s recent weakness amidst economic turmoil suggests that financial markets may be beginning to question the situation of currencies’ safe shelters.
It is true that the administration’s efforts to cut taxes and deregulation have not yet begun. But as they are likely to be combined with tariffs from more trading partners, rash policymaking and the clampdown of undocumented immigrants that make up an estimated 5% of workers feel like an increasingly blind hope for the optimism about the US short-term economic growth. The outline of Trump’s economic agenda is sharpened. It’s already worse than everyone thought, and he’s only six weeks.
