Donald Trump’s greatest achievement as president is the same as his greatest achievement in pre-political life: restraining his destructive impulses just enough to avoid fully squandering the fortuitous economic circumstances he inherited.
Put more generously, Trump has sustained the Obama era’s favorable wage and job growth trajectories by supplying the economy with fiscal and monetary stimulus, and this has gone a long way toward compensating for the man’s many faults. But now, the real-estate heir’s (roughly) 73-year-long streak of good fortune may be finally running out.
Before a historically contagious coronavirus bubbled up in Wuhan, China, late last year, Trump’s reelection campaign had the wind at its back. Wall Street’s anxious chatter about inverted yield curves and impending recession had gone quiet. America’s unemployment rate was hovering near half-century lows, wages were rising, and consumer confidence reigned throughout the land. And when financial analysts gazed into their crystal balls (and/or Bloomberg terminals), they saw that 2020 would bring more of the same. With the U.S. and China’s phase-one trade deal finally inked, corporations spooked by trade war would finally breathe easy and invest copiously.
Two months and 3,000 coronavirus deaths later, Wall Street’s oracles are offering a very different prophecy. In its latest analysis, Goldman Sachs slashed its estimate for global growth by a full point, from 3 percent down to 2. For the United States, the new outlook would mean growth slowing to under one percent in the first quarter of 2020 — then to zero over the ensuing three months — before very gradually picking up in the latter half of the year.
The bank stresses that this forecast rests on arguably optimistic assumptions, writing that “while the U.S. economy avoids recession in our baseline forecast, the downside risks have clearly grown.”
The Organization for Economic Cooperation and Development concurs. In a new report, the OECD outlines multiple scenarios for the incipient pandemic’s economic consequences. All would mean slower-than-anticipated growth over the coming months. In its expected baseline trajectory, the virus produces a severe but short-lived downturn in China, along with milder slowdowns in Japan, Australia, and South Korea. Taken together, this would shave about half a percentage point off global growth, bringing it down to its lowest level since 2009. The OECD’s bleaker (and increasingly probable) “domino scenario” would see the intensity of China’s outbreak “repeated in northern advanced economies severely hitting confidence, travel, and spending.” In that case, global growth declines by half, Japan and Europe enter recession, and the U.S. economy grinds to a near halt.
The multinational group acknowledges (but does not extensively detail) an even more adverse scenario in which the virus spreads to the Southern hemisphere, thereby blunting the ameliorative effects that spring’s arrival in the north might otherwise entail.
Any of these scenarios would ostensibly reduce Trump’s odds of victory from what they otherwise would have been. Even in our age of peak polarization, a small but potentially decisive faction of voters still turn against incumbents when the economy turns on them. As the political scientists Larry Bartels and Christopher Achen have documented, such voters take a “What have you done me lately?” attitude when evaluating incumbent economic performance. Perhaps the economy will still be better this November than it was four years prior. But if the final six months of Trump’s tenure are worse economically than all that preceded it, the overall gains of his tenure may not matter:
What’s more, there’s reason to think Trump will be unusually vulnerable to a turn in the economic tides. The electorate has long viewed Trump’s economic management more favorably than they have the man himself. In RealClearPolitics’ polling average, some 55 percent of Americans approve of the job the dealmaker-in-chief has done on the economy — but only 39.6 approve of his overall job performance. In the first weeks of this year, there were signs that swing voters’ financial optimism was overwhelming their personal antipathy for Trump. In Gallup’s polling, as Americans’ economic optimism hit a record high (with 59 percent saying they are better off now than last year, and 74 percent saying that they expect to be better off next year than they are now), so did the president’s favorability.
Early last month — when it appeared that the virus might be quickly contained within China — it was possible to imagine Trump actually deriving some benefit from the outbreak: Previous strains of coronavirus like SARS had produced short, sharp slowdowns in economic activity that were promptly followed by surges of catch-up growth. Had the COVID-19 coronavirus conformed to that trajectory, it could have gifted the Trump campaign a mini-boom within that critical six-month window before Election Day.
But that outcome looks increasingly improbable. In fact, the market’s Monday rally notwithstanding, recent developments have heightened the global economy’s downside risks. Over the weekend, we learned that the coronavirus has likely been spreading undetected in Washington state for six weeks. It’s now apparent that America’s relatively low number of coronavirus cases reflects out nation’s poor public-health policy: Faulty and inexcusably scarce testing kits rendered the disease less visible, and thus, less constrained by state intervention.
News out of China is more encouraging, with new cases falling to 202 on Sunday, the lowest daily total since January. But it remains unclear whether these gains can be sustained once the nation returns to business as usual. Xi Jinping’s government has slowed the infection’s spread through draconian quarantines that have badly damaged an already brittle Chinese economy. On Monday, the Caixin manufacturing index fell to its lowest level in recorded history, while virtually all real-time indicators of the nation’s economic health — from coal consumption to real-estate sales — testify to a severe slowdown. If fears of recession prompt Beijing to ease restrictions too hastily, the virus could make a comeback. Either way, it’s not clear that markets have fully registered the knock-on consequences of what China has already suffered. The world’s manufacturing mecca was battling slowing growth and mounting debt loads before the outbreak, and its government has been known to manipulate economic data. If Beijing is unable to resuscitate consumer demand or its nodes in global supply chains as quickly as investors now expect, downside surprises could prove severe.
For the moment, U.S. markets seem reassured by the Federal Reserve chairman Jerome Powell’s vow to “use our tools and act as appropriate to support the economy.” But there are limits to what the central bank can do. Although the Fed might be well-advised to bring rates down to zero immediately, interest-rate cuts will do little to revive consumer demand for air travel, hotels, or most any recreational service that requires leaving one’s house in the middle of pandemic. And as the Economist’s Ryan Avent notes, coronavirus does not merely undermine the demand side of the economy, but also the supply side:
In terms of the nature of what we’re facing, well, it’s a supply shock: a reduction in the capacity of the economy to produce goods and services, as opposed to a drop in people’s willingness to spend. Shuttered factories, canceled events: those all represent obstacles to the creation of GDP. When you say supply shock, those who think of anything tend to think of the 1970s and the aftereffects of the oil crises. But as I explain in my most recent column, many—and perhaps most—supply shocks don’t look like that. They are more likely to feature shattered confidence, tumbling stock prices and deflationary pressures.
But where we generally know how to deal with demand-induced deflation—by throwing a lot of fiscal and monetary stimulus at the problem—we’ve got much less of a handle on what to do when it’s a supply problem. It doesn’t matter how much newly printed money you put in people’s pockets if there are no stores open and no trucks to supply them anyway. Markets, I think, have taken a certain degree of reassurance from the fact that governments, and central banks especially, have been ready and waiting with stimulus whenever markets turn a little wobbly. But it’s one thing to rev up the economy when jobless workers are desperate to get back on the job and quite another when workers aren’t sure they want to leave the house.
Meanwhile, the Trump administration has been doing itself no favors. Critics have accused the president of responding to the outbreak in a manner that prioritizes his own political interests above the public’s medical ones. But this is too generous. Our system of government yields many instances in which a president’s electoral incentives are misaligned with the public good. But a pandemic is not one of them. Trump’s handling of the crisis — repeatedly contradicting his own health officials in order to downplay the threat of an epidemic, tacitly encouraging the CDC to proceed from the rosiest plausible presumptions, and calling for a smaller emergency appropriation than even many congressional Republicans thought was warranted — has not served his own political best interest. By all appearance, his response has not been calibrated to maximize his odds of reelection in November, but rather, to improve the tenor of cable news coverage within the next 24 hours. Telling the public that your administration has contained a virus that it has not actually contained may put more green arrows on your TV screen’s streaming stock ticker for a few hours, but it will only undermine the public’s preparedness for an epidemic and thus increase the risk of an election-year recession — all while making your administration look retrospectively clueless or dishonest. In this instance, incompetence has not tempered Trump’s malevolence, but exacerbated it.
And for once, the well-born vulgarian’s good fortune may not immunize him from the worst symptoms of his own congenital ineptitude.