President Trump took office 101 days ago after a campaign that bought his argument that voters could manage the economy well and bought his claim that his policy formulation could strengthen growth and eradicate inflation.
So the news that Wednesday’s GDP had been signed for the first three months of the year was a sharp political shock and a blinking economic warning.
The worst performance occurred at the start of Wall Street’s new presidential term at the end of a quarter when stock prices fell sharply since Gerald R. Ford tried to derive the country from scandals and inflation 51 years ago. And that added widespread uncertainty among businesses and consumers about the rest of the year as Trump pursues a trade war that has already choked supply chains, pushed prices and threatened to lead to a lack of key elements and products on the shelves.
It’s too early to predict where the US economy is heading for the rest of the year. Trump claims that it will bring manufacturing back to the US and create a surge in trade contracts that will mark a new era of prosperity.
But the first quarter figure focused on his political risks. For Trump, what is at stake is the fundamental ability of his ability to define himself in the issues he has always used to define himself.
If the report proves to be an extension or a precursor to a recession, this situation could be an economic analogy to President Joseph R. Biden Jr.’s withdrawal from Afghanistan four years ago. Biden’s approval rating for his job never recovered from that early blunder. Nothing he did afterwards – not millions of jobs produced, not a major legislative victory, not a quick response to Russia’s invasion of Ukraine, but a sense of trust that he could be trusted to carry out his work with the skills he brought to it.
Trump stood in a rose garden called “Liberation Day” on April 2nd, deploying a broad, punitive tariff set to his trading partners. He promised that other countries would come to seek contracts to roll back taxes and other duties he imposed.
A considerable number of Americans look skeptical. Last week’s New York Times/Siena College poll found 55% approved Trump’s handling of the economy, while 43% approved it. About half of voters were dissatisfied with Trump’s handling of trade.
Some of Trump’s economic advisers recognize that the timing and implementation of his tariff announcement could prove to be a huge mistake, even if he praised the underlying strategy. So every few days, they announce new exceptions, and these days to ease the pain of American car manufacturers.
“On April 2nd, President Trump, who was undoubtedly the most powerful place in the world, thought he was projecting America’s power,” said Matthew P. Goodman, who ran the Geography and Economics Center at the Foreign Relations Council and served under Presidents George W. Bush and Barack Obama. “But he discovered that trade was complicated and you needed to be more surgical, and he had to go back then.”
Trump, a billionaire real estate investor, has admitted that his strategy will cause temporary pain for Americans, but on Wednesday he appears to insist that ordinary Americans, at least in toy stores, is barely aware of it.
“Well, maybe the kids have two dolls instead of 30 dolls?” he said. “And perhaps two dolls would cost a few dollars more than usual.”
Whatever Barbie’s cost, Trump faces basic timing issues. It takes years to see huge investments he predicted to flow into the US and bring about the industrial renaissance he has promised. For example, it can take 5 years to build the most cutting-edge semiconductor manufacturing plant.
“These chips, those beautiful chips, make American suckers,” Trump spoke to executives at the White House on Wednesday, calling out how much each of them was committed to spending on the country’s new facilities.
It’s too early to know how quickly these investments take off, including Apple’s commitment. This will be welcomed again by Trump on Wednesday, investing $500 billion, including a mass of manufacturing capacity over the next four years.
However, the economic pain of tariffs can begin within a few months, with upward pressure on prices and shortages of both industrial and consumer products made overseas.
Much of Trump’s political issues lies in his disconnection. For many products, Americans will pay more people, especially Chinese products. There is no American alternative. Furthermore, it may be pointless to produce them in the US.
Trump is clearly sensitive to the prospect of accusation of rising prices as he downplays all economic concerns. This week, when reports spread that Amazon’s subsidiary was thinking of customers paying for all their products, Trump was called Amazon founder Jeff Bezos and complained.
Giving consumers a breakdown of how much tariffs cost, the White House said it would be “hostile and political act.” Amazon immediately said it had never fully approved the plan and would not be enforced.
However, many business leaders are rattling around the environment saying there is no way to project revenue into the second quarter as the economic environment is more uncertain than ever.
“I will continue to tell them not to underestimate Donald Trump,” said David McIntosh, president of Club for Growth for Growth, an anti-tax advocacy group that almost unanimously supported Trump’s return to office.
McIntosh said he was optimistic that Trump will succeed in negotiating tariffs with Western-style democracy, which is ranked as one of America’s biggest trading partners. “I met a lot of executives and said, ‘OK, how do you do this?’ And my answer is to wrap their minds in the “art of dealing” that he is the best negotiator. ”
He said the way to calm the market now is to “have Congress complete the tax cuts bill” and to extend the tax cuts that Trump enacted in his first term.
McIntosh specifically calls for an expanded tax cut by allowing businesses to amortize the costs of building new production facilities immediately, rather than depreciating these costs over decades.
Trump may win an early victory. Treasury Secretary Scott Bescent said Tuesday that “we are very close to India.” He added that South Korea could “send A-Team” for negotiations and that deals with Japan would soon have been possible. Trump on Wednesday called him the day before, Canada’s new prime minister, Mark Carney, and said, “Let’s make a deal.” “He said.
Perhaps so, but Mr. Carney said this on Tuesday after winning the Canadian election. “The old relationship with the US based on a steadily increasing number of integration is over. The US-fixed system of open global trade is a system that Canada has relied on since World War II.
Mr. Carney vowed to reduce his dependence on Canada’s huge neighbors. Bilateral trade is about a fifth of the economy of a country, so there is no easy allocation. China, the most powerful player in Trump’s trade war, is pursuing a similar strategy. And its leader, Xi Jinping, has all the incentives to plague the next few months politically as politically painful as possible for Trump.
Since Trump announced the escalating tariff set on Chinese goods, Xi has largely maintained radio silence, settling at 145% after some angry moves and recoil with Beijing. Its rate is so high that it essentially freezes trade. There have already been reports that freighters are packed with improved goods so that importers don’t have to pay those duties.
Trump’s bet is that the pain in the Chinese economy is so great that it will be left to blink first, allowing the US to return to what is approaching normalcy over time. Xi bets the opposite. This means that Trump can withstand numbers in GDP and cannot withstand polls that are rising or falling inflation.
Only one of them is correct.
