Under threat of impeachment, Trump should aim for a win on the economy – by ending the US-China trade war

There’s no better way for Trump to fight off the threat to his presidency and increase the chances of his re-election by focusing on improving the American economy and global outlook. The damaging trade war must end

David Brown

Published: 1:00am, 8 Oct 2019

Why you can trust SCMP

Financial markets might think otherwise, but the threat of impeachment of President Donald Trump might turn out to be the best outcome for the US economy.

US growth has hit an impasse and is in need of a lift. The trade war with China is taking a heavy toll on America’s economy and dashing hopes for a stronger recovery. There may only be an outside chance of a recession but it shouldn’t be ruled out entirely. Trump must start focusing on his domestic agenda and refrain from further friction with political foes at home and abroad.

With his popularity ratings languishing, the threat of impeachment should be a good incentive to refocus his energies on improving the health of the domestic economy. It’s not rocket science: a stronger economy and a better sense of well-being among voters would be the best way to get re-elected next year.

On the surface, things don’t seem so bad. Last week’s US jobs data for September showed unemployment hitting a 50-year low and new hiring conditions still in good shape. But if economic confidence is a bellwether for future growth, there are problems ahead. US consumer, business and financial market confidence are all giving a worrying thumbs-down to Trump’s economic stewardship.

Consumers are worried about the consequences of the trade war, business optimism is at its lowest ebb since the 2008 financial crisis and the US Treasury yield curve has been sounding recession warnings for months. The economy and markets need better inspiration.

The US economy is running well below capacity, with second-quarter GDP growth slowing to 2 per cent, when it could easily be expanding above 3 per cent, considering the vast array of monetary and fiscal aid pumped in after the 2008 crash.

Yet domestic demand conditions are lacking vigour and inflation is running too slow, leaving the chances of a sustainable recovery looking even more remote. What’s more, US policymakers seem to be in a dither about what to do next.

Trump’s threat to cut China from US capital markets makes no sense

The US Federal Reserve hardly seems a united front about the need for lower interest rates, while Trump can ill-afford to loosen the fiscal purse-strings any further without blowing even bigger holes in the US budget and trade deficits.

It’s time to think beyond new economic initiatives and start looking for better practical solutions to the big political issues overshadowing the global outlook at the moment. If Trump needs a quick fix to boost US economic confidence and rally US financial markets, then there could be no better way than seeking a quick closure on the trade war with China.

Whatever he decides to do and how soon he does it will be pivotal to whether global growth conditions gain traction again or slip back into a deeper hole. It could also make a world of difference to his political fortunes.

Settling the trade war quickly could be cathartic. The bounce-back in US consumer confidence would set the stage for faster recovery, with up to 70 per cent of US domestic spending being consumer-driven.

US business confidence would surge, as strong global economic activity returns, with export-led recovery making a bigger contribution as the US dollar softens on a reversal of safe-haven flows.

Trump denies quid pro quo with China on trade deal and Biden inquiry

Critically, there would be mutual benefits for both the US and China. A stronger US economy would see annual world trade growth bouncing back above 10 per cent in a fairly short space of time as global well-being returns.

Beijing would stand a better chance of hitting its 6 to 6.5 per cent GDP target this year, with the possibility of growth returning above 7 per cent in the next couple of years.

Even with dark clouds surrounding Trump’s presidency, there could be a silver lining for global markets. If Trump moves quickly to defuse domestic tensions and frictions abroad, he can do himself a favour and help the world in one fell swoop. Trump can turn the tide by stopping the trade war right now.

David Brown is the chief executive of New View Economics

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