It’s about time someone yells ‘It’s trade, stupid’ to Trump’s trade negotiators and enlighten them on the folly of their errors

Bill Clinton said “It’s the economy, stupid” during his 1992 US presidential election to alert then President George H. Bush to the state of the American economy.

Now, someone needs to tell Donald Trump “it’s trade, stupid” and draw his attention to the dangerous slowdown in global commerce caused by his trade war.

Much damage already has been done. Even in the highly unlikely event that Trump were to call off his belligerence, the damage will sill be felt. Economic slowdown has gained a momentum of its own irrespective of what Trump does now. He and others are deluded in clinging to the idea of rapid recovery once the White House ends hostilities.

Just how deluded must be obvious to anyone who cares to read the latest Interim Economic Outlook by the Organisation of Economic Cooperation and Development (OECD). It offers a very lucid and concise of summary of what’s going on and is recommended reading not only for the White House but also for financial markets.

The world’s economy is slowing, even in the US, where 2019 growth is set to fall to 2.6 per cent from last year’s 2.8 per cent. US investment and exports are slowing as (ironically) tariffs rise and employment gains soften on fading fiscal stimulus.

Elsewhere, the situation is a good deal worse. Growth in the euro zone is expected to plunge this year to just 1 per cent from 1.8 per cent in 2018, with minimal recovery next year, the OECD said. China’s growth will slip from 6.6 per cent in 2018 to 6.2 per cent this year and again in 2020.

It is not so much the slippage of growth that is worrying, as what is driving it. The term “losing momentum” crops up repeatedly, whether in relation to economic growth, business and consumer confidence, export prospects or manufacturing orders, and if that is not worrying it is difficult to know what is.

Momentum can go both ways, upwards or downward. But pushing an object as big as the US$75 trillion global economy uphill is more difficult than letting it roll (or pushing it) downhill. Downward momentum is greater than upwards because it has gravity behind it and falling confidence is like gravity in this regard.

This applies especially to world trade. Trade growth is what the OECD calls a “key artery in the global economy” and last year it slumped to 4 per cent from 5.25 per cent in 2017 “with trade restrictions having adverse effects on confidence and investment prospects around the world.”

If this sounds too gloomy, consider another important factor. Inasmuch as Trump might attribute the 2016 uptick in the world economy to his tax cuts, the fact is that it was kicked off by a pick up in global trade just before that. This pickup was a cause for celebration because trade and global economic growth had been declining since the 2008 financial crisis despite all the monetary and fiscal stimulus pumped into the world’s economy.

Recovery was like a delicate plant, to be nurtured carefully. Instead, along came Trump, loudly declaring his intention to launch trade wars, and that they were “easy to win.”

The world’s biggest economy is now in trade a war with the second biggest, while looking to open new fronts with the third (Japan), as well as Europe and India.

It is worth quoting the OECD directly just for the benefit of those – from the Trump White House to the New York Stock Exchange – who clearly have not received the message: “Continued uncertainty about trade policies remains a significant source of downside risk to global investment, jobs and living standards. Even if the US and China conclude a trade agreement in the near term, risks remain that other restrictive measures could be implemented in 2019 [such as] new restrictions in specific trade-sensitive sectors such as cars and car parts.”

Don’t look to China for salvation this time. “Recent monthly trade value data remain very erratic but suggest underlying trade growth is slowing, with adverse effects on key trading partners in Asia and Europe,” OECD said.

And don’t look to Japan or Britain, where 201 growth is expected to be below 1 per cent.

That’s not the end of it. “A prolonged period of very low interest rates has resulted in an accumulation of financial vulnerabilities. Asset values are still stretched in some markets and debt levels are high in both public and private sectors, ” OECD said. This is not good when growth is slowing, even if the increases in interest rates stall.

Trump is not the only one who seems oblivious to what ails the global economy. Wall Street has recovered prematurely from its state o shock last December and, bloated as it is with liquidity, seems ready to surge on any hint of a US-China deal. But even Wall Street cannot hide forever from the economic facts of life.

Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs