The vital signs aren’t good. The S&P 500 has fallen more than 10 percent since its September peak, which technically puts us in “correction” territory. In the past few weeks, markets whipsawed over whether we do or do not have a trade deal with China (we don’t) and whether President Trump will further jack up tariffs on Chinese-made goods (still unclear).
Stock wobbles alone don’t necessarily imply an immediate downturn, of course. (They “forecast nine of the last five recessions,” Nobel laureate Paul Samuelson once quipped.) But consumers also report rising pessimism to pollsters. The Treasury yield curve — which shows interest rates for bonds at different maturity dates — has partially inverted, which can signal that traders think the Federal Reserve will have to slash rates to goose the economy. Virtually every independent forecaster foresees a slowdown once the sugar rush of Trump’s tax cuts wears off in the next year or so. And in a recent survey of economists by the Wall Street Journal, more than half predicted that we’d have a full-blown recession by 2020.
Statistically speaking, given how long the economy has been growing, a recession is overdue — and the eventual collapse may bear Trump’s fingerprints. After all, his new trade barriers have lifted manufacturing costs, closed off markets and clouded the future for American firms with global supply chains. Economists say Trump’s trade war is the biggest threat to the U.S. economy in 2019. In loonier moments, the president has also threatened to default on our debt, ramp up the money-printing press, reinstate the gold standard or deport all 11 million undocumented immigrants. Some of those policies would ignite not just a recession but an immediate, global financial crisis.
Or perhaps the contraction will follow some non-Trump-related catastrophe, like an oil shock or a wave of defaults in the growing leveraged loan market. It’s often impossible to ascribe blame accurately.
Yet there’s one thing we can expect with reasonable conviction: Even if Trump isn’t the direct cause of the next recession, he’s likely to make it so, so much worse.
