A panicky Republican elite has finally awoken to the real possibility that Donald Trump will be their party's presidential candidate. Are investors here and abroad about to get the sweats, too?
How could they not? Recall some of what Trump has pledged to do if elected the 45th U.S. president: slap a huge tariff on Chinese goods, break the North American Free Trade agreement, and cut taxes by $12 trillion with no plan to pay for it. So, basically, start a trade war with America's three biggest trading partners and also double the already record-high national debt. Not exactly a recipe most economists — like, nearly all of them — would recommend as sound policy. Rather they would almost certainly view such an agenda as utterly disastrous.
Trump himself says U.S. stocks are currently in a "big, fat, juicy bubble." If he's right, maybe the threat of Trump-onomics at worst and potentially huge policy uncertainty at best will be just the pin to pop it. Markets are forward looking, after all.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
What's more, this Trumpapalooza is happening at a time when neither the U.S. nor global economy is in particularly robust shape. Fed boss Janet Yellen just told Congress that the balance of risks is taking a turn for the worse, mostly due to problems in China and other emerging markets. As it is, the U.S. economy is expected to grow at just around 2 percent this year, a pace history suggests makes it especially vulnerable to suffering a recession. And the last thing other economies around the world need is big trouble in the biggest market for their exports.
Granted, stocks didn't plunge after Trump's big primary victory. Nor did the dollar collapse. Markets were actually steady. There is still probably plenty of skepticism on Wall Street that Trump could actually defeat Clinton. The former secretary of state tops the billionaire businessman in head-to-head polling match-ups, with betting markets giving her an overall 64 percent chance of beating the eventual GOP nominee. Indeed, a Goldman Sachs research report last month noted a "surprising degree of confidence" among Wall Streeters that Clinton would be the next president.
Trump's continued success, however, could create a political-economic feedback loop in his favor: He continues to win primaries, so investors get spooked and sell stocks. Weakening markets and declining 401k balances hurt consumer confidence and spending. The so-so economy slows further and job growth slips. This then strengthens the GOP argument that Obamanomics is a bust. America can't risk a de facto third Obama term with Hillary in charge. Time for a change. Time for Trump.
Another possibility as to why markets are staying calm: Investors don't believe Trump will try and deliver anything close to what he's promised. Maybe Trump the dealmaker is only taking outrageous policy positions to set markers for future negotiations with trading partners and Congress. (Well, that and win GOP primary votes.) And given his great confidence in experts — he doesn't complain government is too big, only that idiots are running it — maybe President Trump would govern more like a centrist technocrat. Instead of the Mother of All Tax cuts, for instance, we would get that model of Washington bipartisan policymaking, the Simpson-Bowles tax reform plan. Disappointed Trumpkins would just have to accept that Mr. Art of the Deal is cutting the best ones possible.
Then again, maybe Trump wins the nomination, beats Clinton, starts multiple trade wars, and tries to pass budget-wrecking tax cuts. As of right now, markets aren't expecting the worst. A few more primary wins, and they might.
Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.
-
Are Western sanctions working on Russia’s growing economy?Today's Big Question IMF forecasts Russian growth but one expert says the West must be patient in bid to deter Putin
-
South Africa’s energy crisis explained
feature Electricity blackouts lead to rising crime and economic hardship and add to pressure on ANC
-
India’s geopolitical aspirations in 2023
feature The emerging Asian superpower is showing ‘growing confidence’ on the world stage
-
Death of a superpower: is China facing a decade of decline?
Today's Big Question For the first time in 60 years, China’s population has fallen – leading to concerns about its superpower status
-
The economic consequences of China’s protests
In Depth The push for greater freedoms could upend the established world order
-
Opec+: what oil production cut means for the West
feature Dramatic drop in output helps Russia but could spell further price rises for consumers
-
Would Credit Suisse collapse mean a repeat of 2008?
Talking Point CEO of troubled Swiss bank attempts to soothe nerves but default risk remains
-
The countries that could follow Sri Lanka into economic chaos
Why Everyone’s Talking About Food and fuel shortages that rocked Asian nation are spreading around the globe
