America’s number one problem right now is that Donald Trump has no plan. He does not have a plan for peace in Ukraine. He does not have a plan to annexe Canada. Above all, he has no plan for what to do if arbitrary and swingeing tariffs on his near neighbours tank the US economy.
That is why, having imposed tariffs on Mexico and Canada, he withdrew them two days later. But that has not stopped major economic indicators taking a dramatic dive.
US consumer spending fell in January for the first time in two years. Sentiment among managers who purchase services has plummeted. Late payments on car loans have hit a 30-year high. And the Dow Jones stock index lost $1.1 trillion on Friday, March 7 alone.
So the chances of a US recession are high. If you voluntarily hike the price of imports, as Trump has done by imposing a 10% tariff on Chinese goods and then doubling it to 20%, that will inevitably feed through to inflation.
Inflation is what destroyed Joe Biden, despite delivering an investment and jobs boom to middle America. But Trump appears oblivious.
He believes that, by injecting chaos and uncertainty into everything – from his trade relationships with near-neighbours, to the legal status of Greenland – the creative destruction of certainty should favour the new coalition of tech billionaires that has assembled around the Trump 2.0 project.
The paradox is that Bidenomics was working. A mixture of tax cuts, deregulation and cash incentives was pulling investment into the USA’s green energy sector and fuelling a hiring spree.
Trump has embarked on a different course, or rather a range of courses – because to reiterate my opening thought: it does not appear that he has a plan. If tariffs are made permanent, they should – eventually – cause production to relocate from China, Canada and Mexico to the USA. But his on-off tariff war with his near neighbours indicates – if there is rationality of any kind here – that this is more about gesture, to force Canada to move a few Mounties to the border.
And while that’s good for mesmerising the MAGA fanatics, it is not an economic policy.
As to the purge of the US federal state machine, withdrawing not just overseas aid but regulatory oversight vital to a market economy, it will damage confidence long before it inflicts the kind of damage you can measure in the output figures or the stock market.
The rule of law is absolutely fundamental to confidence in an economy where all relationships have been reduced to contract, and where the welfare state barely exists and healthcare is expensive.
To billionaires like Thiel, Musk and Zuckerberg, the size of their tech monopolies means the rule of law is irrelevant. They can buy their way out of any problem. But for the rest of capitalism, the injection of sudden arbitrary decision-making by privileged fools massively heightens risk. And investors flee from risk.
Add in Trump’s decision to set up a federal bitcoin reserve and you have a recipe for a massive, government-run pyramid scheme that could easily fail on the same scale that the South Sea Island and Mississippi schemes did in Britain and France in the 18th century.
All cryptocurrencies are ultimately Ponzi schemes: they rely on hype to drive demand. But now they have the US Federal Reserve, which has been ordered to centralise the cryptocurrencies it already holds as a result of asset seizures from criminals. If Trump were to begin buying – or still worse selling – crypto, he could systematically make or break a large part of the American middle class.
Though for now he has said the state will not buy Bitcoin – tanking its value by 5% on the day of the announcement – the possibility that the American government might start undermining its own currency, the ubiquitous dollar, by buying electronic tokens is one of the most alarming things Trump has done since coming to power.
There is a possibility that, if Trump were to combine active industrial strategy with his protectionist economic policies, they could drive investment upwards. But Trump has hired a bunch of people for whom rational state intervention is akin to religious heresy. He is also set to squander the massive boost that military aid to Ukraine had given to America’s domestic arms industry.
So I come back to my initial point. The leitmotif of Trump 2.0 is planlessness. It’s as if he simply assembled around him people he’s seen on TV, who appear to agree with him, and said to them: get on with it, without telling them what “it” actually is.
Added to that, none of the senior figures in the new administration are proven executors. Musk, Thiel, Zuckerberg and their like are proven rentiers and speculators, who’ve got rich from cornering a market in social technology. But the actual government appointees are a second-rate bunch: the kind of people who can achieve moderately if directed well, but not the kind of people who can achieve anything through planless chaos.
Soon Trump will face a second-order problem: a brain drain. London is awash with American businesspeople scoping out the property market and the private schools. A whole generation of senior US military officers is eyeing early retirement and consultancy careers in Europe.
Biden’s America was attractive to European talent. Trump’s ugly racist clown circus is repellent – not just morally, but because a business environment without the rule of law is one where your intellectual property can be stolen and your hard-built business ripped off.
I don’t know how deep the US recession is going to be. I do know that, if it were to be amplified by a combination of financial market turmoil and a Bitcoin collapse, it would make 2008 look like a picnic. That is the risk Trump is running: maybe Elon Musk’s kid can be the one to tell him, because none of the adults in the room will dare.
