xi's moments
Home | Americas

Trump's 2020 bid facing economic turbulence

By SCOTT REEVES in New York | China Daily Global | Updated: 2019-08-21 22:30

US President Donald Trump pauses while speaking during a meeting with Romanian President Klaus Iohannis in the Oval Office of the White House, in Washington DC, the United States, Aug 20, 2019. [Photo/IC]

US President Donald Trump on Tuesday announced that White House officials are exploring the possibility of a temporary payroll tax cut to put more money in the hands of consumers and boost the economy amid anxieties of a looming recession. 

"I've been thinking about payroll taxes for a long time," the president told reporters in the Oval Office during a photo-op with Romanian President Klaus Iohannis. "Whether or not we do it now, it's not being done because of recession."

Trump's announcement contradicted his own aides on Monday who said that "cutting payroll taxes is not something under consideration at this time''.

Any such tax cut would need congressional approval. President Barack Obama cut payroll taxes in 2011 and 2012. The taxes fund Social Security and Medicare.

The announcement comes as the solid economy expected to carry him to a second term is now clouded by the ongoing US-China trade dispute, threat of a recession underscored by the inverted yield curve for bonds, wild stock swings, plus a looming global economic slowdown.

"Trump could win with a not-so-strong economy as Obama did in 2012," Jonathan Zogby, CEO of Zogby Analytics, told China Daily. "He could do this by painting his opponent as a socialist coming for voters' healthcare, Second Amendment (gun) rights, looking to raises taxes and open the borders.

"Unless there's a downturn between now and Election Day, he should have a good chance to win re-election. It's hard to beat an incumbent running on peace and prosperity," Zogby said.

Recessions usually occur after an industry sector crashes, such as the dot-com bust of the early 2000s, or the subprime mortgage crisis in 2007-2008.

This time may be different because the US economy continues to grow, but at a slower rate; employment is at record highs while consumer spending, accounting for about two-thirds of the nation's gross domestic product, remains strong.

With no immediate hits to the economy likely, recession risk this year or next may stem from the trade dispute as companies become more cautious and invest less, damaging consumer confidence. If so, that could create negative feedback, causing consumers to spend less, leading to further corporate cutbacks and job losses.

"President Trump's China strategy is failing," Jason Furman, a professor at the Harvard's Kennedy School of Government who served as chairman of the White House Council of Economic Advisers 2013-2017, wrote in a Wall Street Journal opinion piece. "His tougher approach yielded no meaningful Chinese concessions, but is increasingly damaging the US economy."

In 1992, Bill Clinton's adviser, James Carville, reminded him, "It's the economy, stupid." By focusing on economic issues, Clinton defeated President George H.W. Bush.

Trump appears concerned, tweeting on Monday: "Our economy is very strong despite the horrendous lack of vision by (Federal Reserve Chairman) Jay Powell. The fed (funds rate), over a fairly short period of time, should be reduced by at least (one percentage point). If that happened, our economy would be even better and the world economy would be greatly and quickly enhanced — good for everyone!"

Trump's making the economy the centerpiece of his re-election campaign has hit turbulence. US farmers, a key voting bloc in Trump's 2016 victory, have been pounded by the trade dispute, and retailers say supply chains have been disrupted. Trump tacitly acknowledged this with a $16 billion aid package to farmers after pledging $12 billion last year, and his decision earlier this month to delay a planned 10 percent tariff on about half of the $300 billion in Chinese goods subject to the latest round of import duties.

Last week, the Dow Jones Industrial Average fell 800 points, or 3 percent, after the US Treasury yield curve inverted for the first time since 2007. Inversion of the yield curve — when short-term yields rise above long-term yields — shows that investors have little confidence in the near-term outlook and bid up long-term notes.

In 2005, two-year and 10-year yields inverted ahead of a recession. In the past 50 years, a recession — two consecutive quarters of negative growth — has followed a yield-curve inversion within 18 to 24 months.

However, former Federal Reserve chairwoman Janet Yellen said investors should give less weight to the inverted yield curve.

"I think the US economy has enough strength to avoid (a recession), but the odds have clearly risen, and they're higher than I'm frankly comfortable with," Yellen told the Fox Business Network. "There are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields."

The yield-curve inversion came after the Fed last month cut short-term interest rates a quarter-point. The cut was generally viewed as an effort to stimulate the economy by reducing the cost of borrowing. Most analysts expect the Fed to make further cuts.

Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, said he believes there's a 40 percent chance of a recession prior to the 2020 election.

"Recessions are inevitable, the only question is when?" he told CNBC. "I think that in the next two years, let's say prior to the next election, there's probably a 40 percent chance of a recession."

But not all forecasters are downbeat about the economy, now in its 121st consecutive month of growth — even as Home Depot lowered its sales outlook because of the trade dispute.

The Conference Board, a non-profit research group, recognizes the risks to the economy, but forecasts GDP growth of 2.3 percent in 2019 and 2 percent in 2020.

The Federal Reserve expects 2.1 percent growth this year and 2 percent in 2020. The International Monetary Fund forecasts global growth of 3.5 percent in 2020, with the American economy expanding 1.9 percent.

Global Edition
BACK TO THE TOP
Copyright 1995 - . All rights reserved. The content (including but not limited to text, photo, multimedia information, etc) published in this site belongs to China Daily Information Co (CDIC). Without written authorization from CDIC, such content shall not be republished or used in any form. Note: Browsers with 1024*768 or higher resolution are suggested for this site.
License for publishing multimedia online 0108263

Registration Number: 130349