President Donald Trump touted the country's economic progress Tuesday, highlighting job growth and a robust manufacturing sector, while also blaming the Federal Reserve for stunting the nation's stock market successes.
The Fed raised rates too quickly and was too slow to cut them, said Trump in a speech to the Economic Club of New York. He also pushed for negative rates, noting that other countries "openly cut interest rates so that many are now actually getting paid when they pay off their loan," Trump said. “Give me some of that. Give me some of that money. I want some of that money. Our Federal Reserve doesn’t let us do it.”
Since the 2016 election, the S&P 500 is up by 45 percent, the Dow Jones Industrial Average is up by around 50 percent, and the Nasdaq is up by 60 percent, Trump said. But, while he praised those stock market gains, he noted that "if the Fed had worked with us, those numbers could have been higher by 25 percent."
Trump was scheduled after the speech to participate in a roundtable and a fundraising reception for supporters, where he is widely expected to defer a decision on slapping tariffs on European cars for another six months, setting up a potential showdown between the U.S. and the European Union six months before the 2020 election.
Market observers expect him to touch on trade — both the auto tariffs as well as the ongoing trade war with China, a situation where last week’s promise of a truce has now been thrown into question.
Jamie Cox, managing partner of the Harris Financial Group, said investors have baked in the expectation of another deferral on the European car tariff decision. “Markets are fine with the status quo. If the tariff situation stays where it is and doesn’t escalate, the market can handle it,” he said.
Cox added that intervention from the Federal Reserve has prevented more drastic trade-related market volatility. "A lot of the negative impact has been extinguished by reducing interest rates,” Cox said.
“Trump probably still believes tariffs are good, but he’s also cautious in terms of the economic cycle,” said Nicolas Véron, a senior fellow at Bruegel, think tank in Brussels, and the Peterson Institute for International Economics. “The reality is probably sinking in for him that trade wars are not good for the U.S. economy.”
The decision on auto tariffs has already been postponed for six months, and the issue has been casting a shadow over the economies of export-dependent companies such as Germany since May of last year, when the White House ordered a “232” investigation to determine if the U.S. could slap tariffs on European cars on the grounds that they pose a threat to national security.
“The Trump administration embraces a broad interpretation of ‘national security,’” said Dean A. Pinkert, partner at the law firm of Hughes Hubbard & Reed and a former commissioner of the U.S. International Trade Commission.
“It gives a lot of weight to economic welfare as a factor in determining whether to impose national security tariffs. In addition, specifically with regard to auto tariffs under Section 232, the administration has shown a willingness to use the threat of tariffs to achieve market access concessions from U.S. trading partners,” Pinkert said. “I’m expecting continued negotiations.”
The prospect of a postponement without resolution isn’t likely to bring the same sense of relief on the other side of the Atlantic, though.
“That’s both good news and bad news,” Véron said. While the good news is that the E.U. won’t face tariffs, “it’s not unqualified good news for Europe,” he added.
“The bad news is the issue is not going away and will come back in six months’ time,” Véron said. “That will remain as a dark cloud over the European economy, which is unfortunate at the moment,” since many are already concerned that the bloc’s economy could slip into a recession.
Unlike the trade war with China, wading into a tariff battle with Europe would hurt both sides with little to show for it, experts said.
“Employing a tariff on a European auto manufacturer wouldn’t be very effective because most of the European auto manufacturers already employ Americans,” Cox said, pointing out that much of this production is concentrated in Southern states that are key to Trump’s re-election bid. “And the retaliatory component of that could be worse,” he added.
“There’s not much political support for tariffs on European autos, and consumers would be directly hurt,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
There is evidence that the existing tariffs are already reaching into consumers’ wallets: A survey by market research firm CivicScience found that, as of last month, a full two-thirds of Americans were worried about the impact of the Trump administration’s trade policies and tariffs on their household expenses. One quarter said they were buying less because prices had gone up, up from 10 percent in June, and the percentage of respondents who said they didn’t notice a difference dropped 9 percentage points over that same time frame.
Experts say the looming 2020 election is probably a key driver of Trump’s decision-making at present. “Clearly, Trump is concerned about the economy. He doesn’t want to create too much damage,” Véron said.
“Fighting two tariff wars at once might appeal to Trump’s base, but his base isn’t big enough to re-elect him,” Shepherdson said.