The Trump economy continues to earn a B on the Yahoo Finance Trumponomics Report Card, the same grade it has held since March. We updated our numbers following the strong second-quarter GDP report and the jobs numbers for July, and while our grade didn’t change, some forecasters have slightly upgraded their outlook for the rest of the year. The Trump economy, for now, is going strong.
Nonetheless, President Donald Trump continues to threaten his own economic legacy with escalating tariffs that are likely to do more harm than good. This week, the Trump administration finalized tariffs on another $16 billion worth of Chinese imports, bringing the total amount of Chinese merchandise subject to new taxes to around $52 billion. China has imposed tariffs on a like amount of American exports to China. (Here’s our up-to-date scorecard of all the Trump tariffs, plus retaliatory tariffs imposed by trading partners.)
In addition to the expanded China tariffs, Trump piled on Turkey as the country endured a sharp currency selloff that threatened to sink the Turkish economy, and rattled global markets. Trump doubled the steel and aluminum tariffs on imports from Turkey from the 25% and 10% levels he imposed on most such imports earlier this year, to 50% and 20% on Turkish metals. Turkey is the world’s sixth biggest steel producer, sending about $1 billion worth of steel to the United States last year. So Trump’s doubling of tariffs will hurt Turkey, and sharply boost prices of select steel products in the United States.
America’s relationship with Turkey is complicated, and there’s a lot more to Trump’s jab at Turkey than trade policy. Still, tariffs are generally anti-competitive, and they put the government in the position of choosing economic winners and losers, instead of letting the market decide. For that reason, this week’s Trump-o-meter reading is one notch lower than it would be if we were just measuring the status of the underlying economy:
Stocks have been buoyant for the past few weeks, with the S&P 500 stock index up around 5.5% since the beginning of July. Strong earnings have largely driven the gains. But earnings season is now over, which means markets will be paying more attention to Trump’s trade wars and geopolitical concerns such as Turkey’s downward spiral.
Economic outlook is promising
Still, the economy is looking good for the rest of the year. Moody’s Analytics recently raised its forecast for annualized GDP growth in the second half of 2018 from 3.3% to 3.6%. Consumer spending and private investment have turned out to be slightly better than expected this year, which should carry the economy into 2019. And recent changes to government methodologies reveal that Americans have been saving more than believed, which means they’re a bit sounder financially than economists thought.
The most immediate risk is Trump and his trade wars. Markets seem comfortable with the current level of new tariffs, but if Trump makes good on his threat to slap tariffs on four to eight times the amount of Chinese imports that he has already, it could be a meaningful hit to growth and a new source of inflation. And economists continue to warn that in 2019 and beyond, clouds could darken as the fiscal stimulus from tax cuts and increased government spending wear off. The message from the Trump-o-meter: Enjoy it while it lasts.
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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman