Early signs show the Trump administration’s hawkish trade policy having a small but growing drag on commerce. That could lead to a collision between President Trump’s desire to wage trade wars and his goal of stoking economic growth.
Trump has promised sustained economic growth and stock market success from his administration’s policies. But as his trade war deepens, business investment unexpectedly stagnated in the third quarter of this year, growing at a meager 0.8 percent, an early warning sign tucked into an otherwise optimistic gross domestic product report released Friday.
“I think the tariffs might’ve had some effect in that regard,” said Stephen Moore, a campaign adviser to Trump who also influenced last year’s tax code overhaul. “I think there’s no question that the tariffs have hurt the economy.”
Jim Pethokoukis, a policy analyst at the American Enterprise Institute, agreed, and speculated that if Trump’s top trade advisers win out, the administration could maintain a hawkish stance on trade regardless of what effect that might have on the stock market and overall economy.
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“If you adopt the Navarro and, in some sense, Lighthizer approach, ‘I don’t care about the stock market, and I don’t care about the GDP,’” said Pethokoukis, referring to White House trade adviser Peter Navarro and U.S. Trade Representative Robert Lighthizer. Pethokoukis added that it remains an open question whether the administration’s trade strategy will win out over the president’s economic promises.
Economic indicators remain exceptionally strong, but the threat of prolonged trade wars may present a drag on the economy. A number of U.S. companies reported Trump’s unilateral tariffs hurt their bottom lines in their third quarter financial reports. The medium-to-long-term uncertainty over trade is seen as one of the drivers of stock market volatility.
“Republicans used to believe very much in the idea that uncertainty was bad for growth,” remarked Pethokoukis.
For now, the president seems content to deflect blame for stock market speed bumps toward the Federal Reserve. But trade concerns could change that calculus.
Last week, a new edition of the Federal Reserve’s Beige book, a survey of businesses and economic conditions across the country, revealed that businesses began stocking up on inventory in the second and early third quarter of this year in order to get out ahead of Trump’s tariffs.
Another private survey released Monday by the National Association of Business Economists gave further confirmation to what the Fed’s hearing, reporting that a relatively small but growing number of businesses say they need to change operations to accommodate for the administration’s trade policy.
“They’re frontloading a lot of inventory,” said Sam Kyei, an analyst for NABE, on a call with reporters. “It seemed to imply that, that there were some advance purchases of products to beat the tariffs.”
That may exacerbate concerns that the economy experienced a short-term economic sugar rush in the first half of the year, thanks to last year’s tax changes and the rush of investment pulled forward to avoid paying new levies on foreign goods. NABE’s survey shows ‘goods-producers,’ which range broadly from agriculture and natural resources to manufacturers, experiencing the greatest effects, though most remain optimistic about their business outlook.
“It’s tough pointing towards a big aggregate effect on the economy,” said Pethokoukis. “But clearly it’s having some impact.”
