President Donald Trump has one main job between now and Election Day 2020: Don’t screw up the economy.
And he’s increasingly listening to internal and external advisers telling him the best way to postpone an economic slowdown is to turn down the burners on his trade wars, avoid any fiscal meltdowns and lay off criticizing the Federal Reserve chairman.
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All of this could flip on a presidential whim. But at the moment, Trump is poised to sign a spending increase that removes the risk of a potentially disastrous debt default and avoids sucking federal dollars out of the economy. Top advisers are jetting off to China next week to continue talks toward a potential trade deal. And after months of presidential bashing, Fed Chair Jerome Powell is poised to deliver a long-desired rate cut next week. If all this holds, some of the biggest risks to Trump’s top reelection selling point could fade.
“The key right now is to avoid prosperity killers, and he knows that,” said National Economic Council Director Larry Kudlow. “Economic growth is his trump card for reelection, if you’ll pardon the phrase.”
In interviews, six current and former administration officials and outside advisers who speak with the president said this “Don’t Screw It Up” caucus seems to be winning out for the moment in internal discussions.
“What he’s got right now, politically, is the economy — and there are plenty of people telling him that,” said one person who speaks to the president regularly and asked not to be identified by name in order to speak freely. “And the good news is, there aren’t that many people left with much influence telling him that trade wars are good and helpful. And that’s where he’s hurt growth — on corporate investment.”
Trump’s prevailing economic caucus includes Kudlow, Treasury Secretary Steven Mnuchin and acting White House chief of staff Mick Mulvaney. Mulvaney, along with acting budget director Russ Vought, are ordinarily sharp fiscal hawks. But neither one is encouraging the president to reject the spending bill.
The legislation the House is poised to vote on Thursday — and that Trump has applauded — would boost spending by around $320 billion and raise the debt limit for two years. It won’t offer a big boost to the economy, but it avoids a fiscal drag economists worried about heading into 2020. And it removes Wall Street anxiety about a debt limit crisis.
“The biggest risk to growth for the economy right now is uncertainty about where conditions are headed,” said Steven Ricchiuto, chief U.S. economist at Mizuho Securities. “If they can just calm things down enough in terms of rhetoric it would be helpful. People like to know there is some level of stability when you are trying to make investment decisions.”
Trump will get another report card on economic growth on Friday, when the Commerce Department releases the first look at second-quarter growth. It’s expected to show the economy cooling from 3 percent growth to closer to 2 percent. That’s roughly what the economy was delivering before Trump arrived, despite his pledge to supercharge growth.
Trump’s trade war with China represents among the biggest drags as manufacturing slows, farmers suffer with lower exports and corporations hold off on big investment decisions until they get more clarity on policy.
Overall, industrial production declined 1.9 percent in the first quarter and 1.2 percent in the second, according to the Fed. Companies are also investing less money in new plants, equipment and workers. Corporate spending grew 11 percent in 2018 as Trump’s business tax cut had its biggest impact. But it will likely slow to 3 percent in 2019, according to S&P Global. Strong consumer spending continues to keep a floor under the economy but limiting trade war damage is now a top administration priority.
The White House formally announced on Wednesday that U.S. Trade Representative Robert Lighthizer and Mnuchin will travel to Shanghai next week “to continue negotiations aimed at improving the trade relationship between the United States and China.”
Trump, while still complaining about a lack of agricultural purchases, has held off on imposing stiffer tariffs since his meeting with Chinese President Xi Jinping at the G-20 summit in Japan last month.
Part of this reflects advice from internal advisers and outside corporate executives with the ear of the president who are imploring him to avoid making the trade war worse.
“Business owners have come in and told him that, major CEOs of companies,” said a second outside adviser who speaks regularly to the president. “He has some advisers who tell him that we can benefit from tariffs, but I would say that’s certainly a minority opinion in the White House.”
Two White House officials who urge a sharply confrontational approach to China — trade adviser Peter Navarro and Commerce Secretary Wilbur Ross — appear now to have less influence on the president. One of the GOP’s biggest China hawks, former senior White House aide Steve Bannon, is now out of Trump’s orbit.
While the president will not abandon his tough approach to China, advisers say, he’s keenly aware that he has less room now to spark sharper conflicts. “Unless something very negative happens between now and then, the president should be in a place where he goes into the election having built a very strong economy,” said Chris Campbell, a former senior Trump Treasury official and top GOP congressional aide. One of those very negative things would be a full-scale trade war.
Trump also regularly gets an earful from Agriculture Secretary Sonny Perdue on the impact of retaliatory tariffs on farmers, many of whom can no longer sell as many soybeans and other products to the Chinese. “Sonny Perdue is always talking to him about what is he hearing back in districts and across the country from farmers,” a senior administration official said.
Trump also remains fixated on stock prices. And Wall Street tends to rise on every positive development with China and sink when talks appear stalled or the president fires up his Twitter account to talk tough. At the moment, the Dow, S&P and Nasdaq are all hovering around record highs and Trump is basking in the glow.
“Every time Larry’s in there, [Trump] asks how the market is doing. Morning, afternoon, whatever,” said a second senior White House official, talking about Kudlow’s frequent visits to the Oval Office.
This had led Wall Street traders to conclude that Trump is unlikely to provoke more confrontation over the next 18 months. “I don’t see him doing a real deal with the Chinese until after 2020,” said Steve Massocca, managing director at Wedbush Equity Management. “There is no way he’s going to inflict some huge new tariffs to force China into a deal right as he’s walking into reelection. I think the whole thing simmers and gets tabled until after the election.”
If Trump upends this consensus view, both the economy and Wall Street could suffer.
On the Fed, Trump spent months ripping Powell and the central bank over a gentle series of rate hikes, arguing that it caused the economy to slow and hurt markets. He’s been at least somewhat quieter recently, which aides say may reflect the fact that the Fed is expected to cut rates by at least quarter point when it meets next week.
Top advisers don’t expect Trump to leave Powell alone, because the Fed chair serves as a useful foil and someone to blame if the economy does falter. But they hope he will simply declare victory and move on to other targets.
“They’re going to get a big win next week, the Fed’s going to cut rates so that’s a positive,” the second outside adviser said.
White House advisers in the “don’t screw it up” caucus are not looking for a massive economic or market bounce from a rate cut. But they do see it as insurance against a sharper slowdown.
And they are not really hoping for a return to multiple quarters of impressive growth like they enjoyed in 2018. What they want is for Trump to avoid triggering any landmines between now and next November.
“We do see good things ahead,” the first senior administration official said. “It may not be the 3.2 percent and above, but things are going well.”