Stocks are crashing (Source: here)
Welcome to the Trump Dump!
By now, it has not escaped anyone's attention that US stock markets have dropped sharply. The outlook for the US economy is also darkening. The Atlanta Fed’s GDPNow estimate points to a 2.4% collapse in US growth in Q1.
Some of the economic weakness is due to front-running of imports ahead of tariffs (rising imports detract from GDP). This will almost certainly reverse in Q2 and so may help avert a recession.
Indeed, stocks may recover sharply, when the data starts to improve, sucking back into stocks all the weak hands selling now. The big fish, I am sure, are already bottom-fishing here.
Still, Trump's policies will unambiguously inflict long-term damage on the US economy. Part of the latest drop in stock markets reflect concern about an economy that faces deeper long-term problems under Trump.
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Which is a pity, because the weaknesses in markets and the economy right now were anything but inevitable. Trump inherited a perfectly healthy and solid economy and strong markets merely weeks ago. The ongoing Trump Dump is due to the president's deeply misguided policies; Trump is 100% responsible.
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One could easily make a long list of Trump’s individual policy mistakes, but I think it is more instructive to paint on a larger canvas. Things - many things - are going awry, because Trump fails to understand the single most basic yet important thing about economic policy-making, namely that the role of government is not to compete, but to facilitate.
Competition and facilitation are not same thing. Companies compete. Governments facilitate.
Governments facilitate competition in the private sector by reducing frictions and unpredictabilities, thereby creating the best possible environment for the private sector to thrive and generate wealth.
Governments facilitate by endeavouring to lower tariff and non-tariff barriers as much as possible, because lower trade taxes make the economy more efficient.
Taxes, when they are used, should aim to eliminate serious negative externalities and rein in industries with excessive monopoly powers.
Fiscal policy in general should address grotesque levels of income inequality and enable disadvantaged people in society to realise their true potential, for example by giving them access education, healthcare, security, good infrastructure, and legal services.
It is critical for growth that governments put in place stable long-term policy frameworks, so investors can make bets on the future with confidence. This strongly encourages risk-taking, such as investment in technological innovation.
Underpinning all the government policies should be a commitment to a set of values supportive of peace, prosperity, inclusion, freedom, accountability, rule of law, democracy, and peaceful cooperation between nations.
These basic foundational building blocks deliver the best possible conditions for the private sector to flourish. Governments should aggressively encourage competition within the private sector to ensure that the best and most efficient companies rise to the top. Government should never pick winners nor protect certain sectors by interfering in trade.
This is how countries succeed. This is how America succeeded for many decades.
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But this is not what Trump is doing; Trump is doing the opposite.
Trump is destroying the public sector, including many of the programs that enable all Americans to maximise their contributions to the US economy. He is screwing around with international trade and – worse – taxing American in the process, thereby raising costs for the American economy, limiting choice, and creating massive distortions that ultimately lead to rent-seeking and corruption. He is kicking millions of immigrant workers out of the US, whose contributions to the economy are absolutely essential. By ditching erstwhile American values and betraying age-old and extremely loyal allies in places like Canada and Europe, replacing them with dictators and genocidal regimes, he is destroying America's greatest asset of all, namely soft power.
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I worked for many years in the world of financial investments in Emerging Markets. I have seen some whack-jobs runnung countries. I can honestly say, hand on heart, that Trump’s policies rank among the very worst I have ever seen. It is genuinely uncommon to see good governance unravel so quickly, so profoundly.
Trump’s action demonstrate how not to build faith in the US as an investment destination. Unless things change very quickly, we will see the Trump Dump morph into the Trump Slump.
The End
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