Monday, May 27, 2019

A Question Mark on the American Economy

Donald Trump should worry. The greenback fell on Friday from a two-year high against a basket of major currencies after orders for US-made capital goods fell – further evidence that manufacturing and the broader economy are slowing, due in part to the US-China trade dispute. 

The weaker-than-expected data, a closely watched proxy for business spending plans, drove the dollar lower and added to a fall which began Thursday following a report that showed manufacturing activity hit its lowest level in almost a decade in May. 

Taken together, the reports suggested a sharp slowdown in US economic growth is under way, which could affect the dollar's safe-haven status. 

This may well be a tipping point. 

I came across this Dhrumil Mehta article on fivethirtyeight.com published May 24, 2019 that said “there is evidence suggesting that Trump’s approach to China is becoming more unpopular among the public. According to a Quinnipiac University poll released Tuesday, the share of Americans who say they approve of the way Trump is handling the nation’s policy toward China is 40 percent, a decline of 7 points from April 2017, when Trump first met with Chinese President Xi Jinping on trade. But while Trump’s handling of the US relationship with China may be losing popularity as the trade war escalates, one reason it may not be more unpopular is that the economy is strong”. 

The Quinnipiac poll found that the share of Americans who feel “the state of the nation’s economy” is either “excellent” or “good” was 71 percent – its highest point in nearly 18 years. 

Interestingly, the share of both Republicans and Democrats who gave their thumbs-ups to the economy has surged. In last week’s poll, 92 percent of Republicans and 54 percent of Democrats said they thought the economy was either excellent or good; that’s an increase of 24 points and 3 points, respectively, from April 2017.
















As long as the economy continues to do well, Trump may not be risking much by doubling down on his strategy with China – despite headlines screaming that the trade war is hurting US businesses. 

A CBS News poll conducted the week before found that even though 49 percent of Americans anticipate that the tariffs will lead to short-term economic pain, 39 percent – a plurality – felt that they could lead to better trade deals with China in the long run. And 6 in 10 Americans said that they favor China changing their trade policies toward the US. 

Mehta is right when he suggested that the economy is protecting Trump from any trade war backlash. 

That also explains why Trump is so abominably arrogant in his dealings with China. Not to mention that he himself believes he can bully China into submission.

But should the US economy continue to de-escalate – it is Trump who will find himself in deep shit. 

And Trump’s promise to make America great again may be hollow and empty.

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