In the five minutes following President Donald Trump's latest tweet about slapping new tariffs on China, the stock market saw a dramatic tumble. The fall came just 24 hours after the market dropped due to the interest rate cut announced by the chairman of the Federal Reserve. CNBC's John Harwood revealed that it makes the chance of a recession in 2020 even greater.
As Harwood explained, there's a problem with a Trump promise on trade, no one knows whether or not he's telling the truth. In the past, Trump has announced huge tariffs only to pull out at the last minute and give China another quarter.
"What we know about President Trump is he says a lot of words and a very large percentage of those words don’t mean very much," Harwood explained. "He’s talked about making a deal. It doesn’t happen. He then talks about 'China is going to buy stuff.' He lays it all out himself in the tweet. He said they’re going to buy agricultural products. They say, 'What's he talking about?' They don't do it."
Harwood said that it appears Trump is "sort of lurching from one position to the other" without "a clear end game."
"I think the best the markets have been hoping for is that we simply get a cease-fire and kick the can," Harwood explained. "But he has trouble getting to that modulated position and so it looks embarrassing when he doesn’t have a deal. So, he has to strike back. And then my guess is the next thing that will happen is he will then say, 'Well, I’m postponing tariffs like this to try to calm the markets down.' We’ll see."
The president has been trying to change the trade deals for the United States since taking office in 2017. It was part of a campaign promise he has yet to fulfill. Chinese trade negotiators have operated under the assumption that Trump is bluffing on his pledges to enact tariffs and thus far they've been correct.
At one point Trump even tried to trick the Chinese into agreeing to his demands by appealing to President Xi Jinping’s “nationalistic tendencies” on international property theft. It didn't work either.
When Trump switched gears to threaten Mexico with tariffs, China even advised the country to use their strategy and "dig in" and hold out as long as they could. Meanwhile, the trade wars are causing huge problems for manufacturers who've had to move their operations from China to Mexico.
A Washington Post from June revealed Trump’s attempts to bully other nations are getting less and less effective, as countries like China, Mexico, and North Korea realize that he is not a rational actor. Furthermore, foreign leaders are taking notice of the fact that Trump is up for re-election and might not even be in office in a year and a half.
Farmers are having a hard time under Trump's trade deal, so he proposed a bailout. The problem, however, is that the funds went to massive corporate farms in more urban areas, and not to smaller family farms in rural America.
"Economists tell me that the impact, the damage economically of tariffs, hits faster than the benefits of lower rates do," Harwood explained. "And so there’s a time lag issue. I think that if the president follows through with these tariffs, you’re going to see the rate — the odds of a recession in 2020, which economists now peg at maybe 40 percent, or so, are going to go up significantly. We already have a significant slowdown in the economy, 2 percent in the second quarter. Looking at back to a 2 percent level instead of the mid 2s or high 2s as we had been hoping for."
Trump had promised that the U.S. would get to a 3 percent GDP by 2018, which clearly didn't happen.
"So our economic outlook is likely to get weaker," Harwood warned.
"That is a huge priority for the president!" exclaimed host Stephanie Ruhle. "Won’t that push him to make a deal with China?"
She explained that President Xi is in power for the rest of his life, where Trump is up for reelection in 2020.
"President Trump needs a winning economy," she explained. "You know as well as I do there are scores of Americans who say, 'I don’t love him. I don’t like him. In fact, I’m disgusted by him but with the economy humming and my 401(k) where it is, I’m going to have to vote for him again.' If he doesn’t have the economy in his back pocket, he’s in trouble."
Watch the full discussion below: