CNN
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Donald Trump never told voters there might be a recession on the road to his new “golden age.”
The president’s refusal – twice – to rule out an economic contraction this year set off a stock market plunge on Monday that hammered Americans’ retirement accounts.
But the 9% losses on the S&P in less than a month reflect a wider force unleashed by the president in his new term – global instability and uncertainty about what he’ll do next and what the world will look when he’s done.
Trump is trying to shatter everything that everyone thought they knew about US foreign aid, trade and economic policy. He’s set off trade wars with US neighbors, indiscriminately fired thousands of government workers, and switched to punishing the victim in Ukraine — fracturing an 80-year bond of trust with allies.
And, as he told the nation a week ago, “We’re just getting started.”
So it wouldn’t be surprising if there’s a price to be paid.
Trump’s voters love his instinct for disruption and volatility. But with consumer confidence softening, hiring slowing and fears of a recession growing, the last thing the economy needs is a president whipping up uncertainty.
But in a Fox News interview on Sunday, Trump lacked his usual bombast when asked whether the strong economy he inherited from former President Joe Biden would tip into recession this year. “I hate to predict things like that,” he said, and compounded the damage later on Air Force One by saying, “Who knows?”
It was less what Trump said but how a president known for unshakeable certainty said it.
Trump’s apparent acknowledgement on Fox News that his policies, including tariffs, could cause a period of “transition” for the economy was also disturbing – since it appeared to indicate that short-term pain is in the offing and that he is prepared for a country weary of high prices for groceries and housing to endure it.
Predictions that the resilient US economy is about to crash have been wrong for years.
Other than during Covid-19, the last major contraction was in the 2008-09 Great Recession. And the Federal Reserve is upbeat, despite some indicators in recent weeks flashing the possibility of a slowdown. A few bad weeks for a market that many analysts consider overvalued and due for a correction need not presage a wider economic disaster.
But Trump, by trying to change so much, is still playing with fire. His administration so far is showing great skill in tearing things down, but less facility in explaining how his chaos will translate to swift prosperity.
One example is Trump’s harsh turn against Canada and Mexico and his threat for 25% tariffs that he imposed last week – then froze for a month – as well as reciprocal tariffs that will catch other US friends in his dragnet in early April.
“What we’re seeing in the policy approach is a lack of vision,” Julia Coronado, president and founder of MacroPolicy Perspectives LLC, told Richard Quest on CNN International. “We all knew that there was a vision on narrowing trade deficits, reshoring some activity. … We’re really going after our closest friends, both on a foreign policy level as well as a trade level, and that feels like more of a profound change, without the clear vision of what we’re trying to achieve.”
White House officials on Monday dismissed the panic on markets and the idea that an economic contraction is looming. They also argued that any core weakness in growth is not due to Trump’s whiplash leadership but a hangover from the Biden administration.
“I think that what’s going to happen is the first quarter is going to squeak into the positive category, and then the second quarter is going to take off as everybody sees the reality of the tax cuts,” Kevin Hassett, director of the White House National Economic Council, said on CNBC.
Trump has not had time to fully enact his economic policies yet – or to demonstrate his claims that they will make Americans far wealthier and send the economy soaring. But relying on the stimulative potential of tax cuts to generate growth doesn’t say much about the underlying strength of the economy. And Hassett set an ambitious timetable for pushing a complex tax-cutting bill through Congress, given the tiny GOP majority in the House of Representatives.
There was more happy talk about tariffs unleashing rocketing prosperity by Commerce Secretary Howard Lutnick on NBC’s “Meet the Press” on Sunday. “There’s going to be no recession in America,” Lutnick said.
Such rosy assessments seem rather familiar and risk falling into a dangerous political trap that snared the Biden administration – that of telling voters the economy is in better shape than they perceive it to be. Repeated claims by top Biden aides that the worst inflation since the 1980s early in his term was merely “transitory” eroded public trust in his presidency and played a significant role in paving the way for Trump’s return to the Oval Office.
It was also notable Monday that the president did not appear publicly for a new round of economic commentary as the stock market, one of his favorite scorecards of his own performance, tanked.
Growing concerns about the economy and the impact of Trump’s shock-and-awe policies pose several questions about his next moves.
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The president has argued that his tariff policies will quickly bring in billions of dollars to the United States and rejected the economic logic that consumers will pay for them in higher prices. His aim is a laudable one – restoring the US industrial base that has ripped the heart of rust-belt manufacturing areas. But achieving this goal would mean reversing decades of globalization – a task that would take far longer than Trump’s remaining years in the White House. This puts Trump’s comments about a “transition” period for the economy in a new light. Will Americans experience discomfort until the policy yields results?
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Or will Trump react with his characteristic volatility to days of selloffs on Wall Street by moderating his policies? There’s no sign of that yet. On Fox, the president, who endlessly claims credit for market rallies on social media warned, “You can’t really watch the stock market.” He added: “If you look at China, they have a 100-year perspective. We have a quarter. We go by quarters.” Last week, however, Trump didn’t even have a 100-hour perspective – freezing tariffs on Mexico and Canada a day after they’d been imposed, following a poor reaction from the markets and blowback among Republican lawmakers. A new Trump climbdown this week might calm markets. But at some point, volatility itself becomes self-perpetuating and could boost recession fears.
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One key question hangs over Trump’s second term: Is the president prepared to pay a political price and to spend significant capital to impose policies that represent a risky break with years of US orthodoxy? He still enjoys loyal support from his base. But rising pressure on Republican members of Congress caused by Elon Musk’s shredding of the federal government showed that the GOP is not immune from the consequences of Trump’s actions. And midterm elections loom next year.
Trump’s presidency is only six weeks old – and if the economy steadies and markets respond, Monday’s panic will be seen as a momentary blip.
But there’s a foreboding sense that a serious moment is approaching.
Former Treasury Secretary Larry Summers, who correctly called the inflationary spike that marred Biden’s presidency, struck an ominous note Monday as he signed off after an interview with CNN’s Kasie Hunt.
“Good luck to you and your viewers in this challenging time,” he said.
