For America’s beleaguered farmers and shell-shocked free traders, it's as much the manner in which President Trump has conducted his trade war that is alarming as the fact that he’s waging one. The president and his team prize unpredictability and flexibility in negotiations, a preference on full display this week after reports predicting that the White House will enact a 25% tariff on $50 billion worth of goods entering the country from China, just weeks after it appeared Trump would back down out of fear of rattling the economy heading into the midterm elections.
Folks at the Chamber of Commerce, and farmers across the country, have repeatedly bemoaned the cloud of uncertainty that this whipsawing of policy places on their businesses. If buyers abroad don’t know what U.S. policy is going to be, they don’t know if and how their home governments are going to react with tariffs of their own. Under such circumstances, it’s safer for foreign buyers to simply source from Europe or South America instead, and that’s exactly what American farmers complain their erstwhile customers are doing.
This degree of unpredictability appears unprecedented for a modern American president, but it’s possible that even this aspect of the Trump White House is a product of hype. If you take a look at the Economic Policy Uncertainty Index, a measure created by economists at the University of Chicago and Stanford University, there’s actually far less economic uncertainty in America today than during pretty much any point during President Obama’s first term.
The differences can’t just be blamed the decisions of Obama and Trump, or the respective Congresses they served alongside. That the European debt crisis was building in intensity during Obama’s first term created a lot of economic uncertainty in the U.S., while much of the uncertainty measured at that time can be blamed on the impending expiration of some aspects of the Bush tax cuts—and we can’t blame President Obama for the timing of that law.
But the index hit its peak in August of 2011, and revisiting that month may help shed a light on why markets and the economy have shrugged off President Trump’s antics in a way that the nation’s newspaper editors can’t. It was in August of 2011 that S&P downgraded U.S. government debt for the first time, arguing that Republican threats to default on the national debt, if President Obama didn’t agree to massive budget cuts, meant that it could no longer be confident that the U.S. Congress had the will to meet its obligations.
With a $1.2 trillion dollar deficit, President Obama was eager to bolster his budgetary bona fides in the run up to his reelection campaign, and was willing to negotiate with unprecedented Republican demands to tie a debt ceiling increase with significant budget cuts, combined with allowing Bush-era tax cuts on the rich to expire.
But even this offer, which fairly blended Republican demands for budget cuts with Democratic demands for the wealthy to shoulder a greater share of the budget burden, was too impure for a large number of House Republicans. House Speaker John Boehner had to resort to Democratic support to get the debt ceiling raised, which also forced him to accept the idea that if there were budget cutting that needed to be done, it would be equally distributed between the military and social programs.
It was this budget deal—which was too timid for 2011 House Republicans—which included the cuts that the GOP jettisoned in its most recent spending package, with the GOP arguing that the cuts were simply too much for the American military to bear.
A large minority of Congressional Republicans are so righteous and dismissive of the tens of millions of Americans who disagree with them that they are completely unwilling to submit to any sort of compromise, even if it results in a default on the government debt. Despite the media’s focus on Trump and his headline-grabbing antics, this fact poses much greater danger to the global economy than Trump’s trade wars ever will, which when all said and done, will affect a tiny fraction of American output. (Though the political costs will likely be much higher).
Seen in this light, it’s not surprising that markets and the economy are reacting well to a Trump presidency. That’s because, as long as there is a Republican in the White House, the radical wing of the House GOP shrinks proportionately with their fears of progressive hegemony. Donald Trump knows that budget cutting will earn him no glory, and House GOPers know that their brand of radical anti-government spending only works with its base when they perceive that it's “other people” getting the government handouts.
Trump will continue to hold back the most dangerous force in American politics, but it’s only a matter of time before another Democrat wins the White House, and these folks will be back to talking about how debt is the single greatest threat facing America. Only this time, thanks to the Trump tax cuts, there will be a whole lot more of it.
Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.