Trade War Fears Freak Out Markets, Which Should Freak Out Trump

By
Political instability feeds stock market instability, and that could mean trouble for Donald Trump and his party.

The political world has been transfixed this week with chaos in the White House, including the president’s wildly mixed signals about the omnibus appropriations bill that he finally signed on Friday. But the stock market is mostly worried about something else: the possibility that the tariffs on China that Trump announced on Thursday could add to the already high risk he is courting of a global trade war.

It was part of a broader pattern, as the Associated Press noted:

The S&P 500 index dropped 55.43 points, or 2.1 percent, to 2,588.26. The index skidded 6 percent this week, its worst since January 2016.

Compounding the trade-war jitters is a growing suspicion among economists that the economic growth that seemed so apparent early in the year may actually be slowing down, as a leading bank analyst suggested:

We are NOT buyers of the tight labor markets-higher wages-higher inflation-higher bond yields story (check out insignificant wage growth in Japan and Australia — both with very tight labor markets with very high labor force participation rates as examples of the weakening link between unemployment and wage growth) …


We think the risk is that nominal global growth SLOWS a lot more than consensus believes.

So you’ve got some investors thinking that the big risk is higher interest rates and others thinking it’s slower growth. And everybody’s worried about the unpredictable direction of a trade war.

To the extent that the Trump administration is playing with economic fire on the trade front — and the stable-administration-of-the-government front, too — it could indirectly be playing with political fire as well. While partisan Democrats and Republicans may be largely impervious to the positive and negative economic implications of the president’s style and substance, there’s evidence that they do matter to the small but crucial number of persuadable voters:

In addition to that cold political reality, an unstable or declining stock market is one less thing the president would be able to tweet about triumphantly, at the expense of all of the scary things he is doing.

Trade Fears Freak Out Markets, Which Should Freak Out Trump