Following the Republican Party’s setback in the 2018 midterm congressional elections, President Trump was roundly criticized for not having made the strong U.S. economy the central issue in that electoral campaign. This week, in a speech to the Economic Club of New York, Trump made it clear that he has learned the lessons of 2018 and that in 2020 the strong U.S. economy will be front and center of his reelection bid.
It’s an open question, however, whether campaigning on the economy will still work in 2020, particularly if more than half the electorate still believes that its economic and financial welfare has not improved during the Trump presidency.
Or it might be asked, while the U.S. economy remains in good shape today, can we be sure that it will remain in good shape when voters go to the polls a year from now? Or will we have a repeat of 2008, when Wall Street and world financial markets went into tailspins following the Lehman bankruptcy in September 2008, costing Sen. John McCain (R-Ariz.) the presidential election?
One indication that the economy might not be a winner for Trump in 2020 is a very recent Financial Times-Peterson poll about of voters’ attitudes towards the economy. The poll showed that despite record-low unemployment and record-high stock market prices, almost two-thirds of Americans believe that their finances had not improved since Trump took office. Should the economy falter or the stock market stumble in 2020, those numbers are only going to get worse for President Trump.
Another reason for doubting the economy’s ability to generate votes for Trump is the worsening state of the global economy. As the IMF has pointed out, largely as a result of Trump’s protectionist trade policy, the global economy has moved from a state of a synchronized economic recovery in 2018 to one of a synchronized global economic slowdown today.
Sadly, this global economic slowdown is already taking its toll on the U.S. economy. U.S. manufacturing production is already in a slump, while the overall U.S. economy has slowed to below 2 percent growth. That rate of growth represents a stall speed for the U.S. economy and is below the average growth performance during the Obama administration.
Worse yet for Trump is the distinct possibility of real trouble for the U.S. and global financial markets in 2020. Were that to occur, Trump would be denied a record U.S. stock market as one of his chief selling points for another term in office. This is particularly the case considering that to date under his presidency the U.S. stock market has increased at only around half the rate that it did during President Obama’s first term in office.
One reason for fearing a stock market setback for Trump in 2020 is that years of ultra-easy monetary policy by the world’s major central banks have led to a situation where the world is drowning in debt. It has also led to a situation where global credit markets have become highly distorted and global asset prices have become unduly inflated. This makes the U.S. and global financial markets uncomfortably susceptible to any significant shock to the global economy.
There are no shortage of potential events that could trigger a global financial market sell off in 2020. A Chinese military crackdown to quell Hong Kong civil unrest would almost surely lead to a re-escalation of U.S.-China trade tensions. A hung parliament following the United Kingdom’s election on December 12 would resuscitate fears of that country crashing out of the Europe Union without a deal. Iranian adventurism following the U.S. withdrawal from Syria could again lead to a meaningful disruption in world oil supply.
And then, of course, there is always the risk of erratic economic decisions out of Washington. For instance, if Trump were to follow through on his threat to impose a 25 percent import tariff on European and Japanese automobiles, it is difficult to overstate how damaging that would be for the global economic outlook.
All of this is not to say that Trump is mistaken in thinking that the economy will be the central issue in the 2020 election campaign. Rather, it is to say that the economy might not be the strong suit that Trump thinks it will be for his reelection bid.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.