- Trump is now in the process of stoking the flames of a trade war. We aren't there and might not ever get there, that is true, but it is in the cards based on the actions taken. We are raising tariffs on steel. Meanwhile Europe and China have vowed to retaliate. It is a pretty strong consensus that tariffs like this are going to be an economic net negative for the aggressor(and, well, everyone).
1 2. You are right that Trump is a bit of a pussy when it comes to this, but he is also someone that hates to look weak. Will he cower and not strike back if the retaliation triggers him? Will he be like Bush and cut and run, removing the tariffs after the heat of the counter-tariffs on cheese in Wisconsin threatens a needed congressional seat? IDK, but we have to leave open the possibility he won't do the right thing, even if Ludlow tries to push him safely away from the ledge if his instincts are to double down. Which they certainly can be.
- On the stock market. Trump has just appointed what may or may not be an inflation hawk(he once was pretty notably one but has more recently vaguely praised Yellen's approach, so who knows), but he has already spooked markets a bit with his talk of routine raising of interest rates along with rising equity prices. Which are likely to continue with 3, maybe up to 6 more rate increases in the coming year(s). If more than expected it could spook markets. That could theoretically put a bit of a hamper on stock market growth. In a real
sense, some have argued there are shades of 1987: record stock market, rising interest rates following a period of major growth, rising equities and a weakening dollar. Like
Scott Minerd pointed out. Of course you can find counter-arguments aplenty. And just as you can find Goldman Sachs chief economists projecting a potential 10-25% drop if 10 year yields continue their trend of rising up toward 3-4.5%, you can find counter arguments saying 4% is unlikely. My only point is that the potential is there and Trump(and the GOP) certainly helped push the market up with the regulatory decisions and the tax cuts that have sugar rushed the markets.
- As for deregulations, the ironically sponsored Crapo bill just passed the Senate. While it does some things I would agree with, like raising the bank stress test threshold that I think on a bi-partisan level is felt to be set far too low and been too burdensome on smaller banks. However, it very likely is over-correcting. Since it raises it to basically 250 billion. Which for reference would of excluded companies like Lehman and Countrywide from the sort of stress tests we put in place specifically to prevent another 2008. You are basically raising the threshold above the level we already know there is more than enough systemic risk to drag down the economy. On top of that you have Trump filling the regulatory agencies with cronies and de-rgulatory patsies with a mission to undercut enforcement, which is very reminiscent of the regulatory environment found in 2008. So that is my logic there.
- As to the point about the distributional effects relative to the investments vs demand side of the economy.
I'm basically pulling from a person, Yaneer-Bar-Yam, I have a lot of respect for and I think I even linked his paper here once. His findings basically present the idea that there has been a consistent overflow of money into the investments and returns loop of the economy since the mid 1980's(in the form of tax cuts, corporate welfare, benefits cuts, etc.) where the production sector has become flush with capital, which has put it further and further out of balance with the consumption and wages loop of the economy. The result is that it leads the economy to hitting an economic wall roughly every 10 years and we get a recession(and if you look at the last few decades of business cycle history, we hit another recession pretty regularly every 7-10 years). Which in response, monetary policy does most of the heavy lifting and attempts to rectify this by reducing interest rates because its the only lever it has, which helps us ease out(and itself has been pushed near its maximum) but doesn't prevent us from running back into the wall again due to the underlying structural imbalance that continually is failing to be corrected. They lay the preliminary solution at fiscal polciies that help better balance those two things. I.E. massive redistributions of wealth to the struggling sectors as being the most obvious and efficient corrective solution. If these findings have merit, and based on his track record predicting and analyzing the causations of the Arab Spring, I tend to think they likely have some, Trump has already taken a number of actions that would exacerbate that issue.
