President Trump made many promises on the campaign track last year. Investors and business leaders enthusiastically cheered, such as lower taxes and relaxed regulations, and expressed caution about others, such as rates and reduced immigration.
But when Mr. Trump won the elections, there was few signs of that ambivalence: stock prices rose, just like measures of business optimism.
At the time, investors offered a simple explanation: they believed that Mr Trump, supported by a congress controlled by the Republicans, would follow the parts of his agenda that they liked and the more disturbing policy such as screwing back when the financial markets started to touch.
It is becoming increasingly clear that they were wrong.
In his first few weeks, Mr Trump has the central focus of his economic policy, promising and sometimes imposing, steep fines on allies and opponents. He has threatened to curb subsidies on which companies had started trusting. And he has enabled Elon Musk's efforts to lower federal bureaucracy, possibly bring tens of thousands of federal employees out of jobs and to cut billions of dollars of government subsidies and contracts.
The most surprising, at least for the optimists on Wall Street: Mr Trump has not so far deterred by depositing signs of cracks in the economy or by the stock prices.
“The idea that the administration will be stopped by a self -imposed market restriction must be discounted,” says Joe Brusuelas, chief economist at the RSM accountancy firm.
And yes, on Tuesday, because financial markets seemed to establish after days of steep losses, Mr Trump made them with a new shock and escalated his trade war with Canada. Large stock indexes immediately fell sharply on the news, although they returned later in the day.
Far from being deterred by warnings that caused his policy of economic damage, Mr Trump has embraced in recent days, and tells a Fox News -Interviewer on Sunday that the economic unrest reflected a necessary “transition period” and refused to exclude a recession.
Other members of his administration have reflected that message, which describe price increases and cuts in government spending induced by rate as a hard but necessary medicine to restore the economy in health.
Scott Bessent, the Minister of Finance, told CNBC last week that the economy needed a “detox period” after he was “addicted to these government spending”.
Karoline Leavitt, the press secretary of the White House, said on Tuesday that “we are in a period of economic transition”, which would result in “a golden age of American production.”
She trivialized the stock market reaction and called it “a snapshot of a time in time”.
“Look, the president is unwavering in his dedication to restore American production and global dominance and I think he doubled that with his new statement” on Canada's rates, she said.
However, most economists reject the idea that the economy needed such a shock therapy, or that Mr. Trump's policy would be useful if it were.
“It is an attempt to give the pain and the uncertainty that we are currently undergoing a broader meaning and encouraging us that we are going in a better place,” said Nathan Sheets, a former treasury officer who is now a global chief economist at Citigroup, of the new message of the administration. “But the bigger question is, are we really going in a better place?”
The answer, according to Mr. Sheets and others, is 'no'. Rates are likely to increase prices and slow down growth. Fast immigration policy can do the same. The government's dismissal could improve unemployment, while cutbacks on federal investments in research and development can leave the US economy less productive in the long term.
“It seems that we are going to create pain, see what does not heal and then treat the injury,” said Tara Sinclair, an economist at George Washington University.
A 'shock factor' for companies
Economists do not agree on how much damage the policy of the new administration has caused. The economy has entered the year with a considerable momentum, and most predictors still believe that there is enough kisses to prevent a recession, at least if Mr Trump does not escalate his trade wars.
But the uncertainty of the past six weeks was enough to cloud, which until recently resembled a sunny economic prospect. In surveys, consumers say that they have become less optimistic about their finances and are more concerned about higher prices. Companies have also become less confident and delay investment decisions.
“There is a shock factor in the business community that we see now,” says Thomas Simons, head -American economist at the investment bank company Jefferies. Companies slow down and postpone buying products and equipment, Mr. Simons said. “It now seems that you want to breathe and have part of the dust established before you make that decision.”
Warn in the short term
The idea that Americans should endure pain in the short term for long -term profit is not entirely new for Mr Trump. In his first term, he praised farmers who were the additional damage in his trade war with China, and described them as 'patriots' who made a sacrifice for the greater good.
But in his first term, Mr Trump also tried to compensate for damage with billions of dollars in help for farmers.
This time the costs related to Mr Trump's policy are potentially much wider, and they come to a much different economic context, when Americans are signed by years of high prices and increased loan costs.
Consumer surveys show that Americans started to anticipate higher prices due to rates. That could be a political problem for Mr Trump, and also an economic problem: if consumers expect faster inflation, it could make it more difficult for policymakers in the Federal Reserve to prevent a delay in the economy due to lower interest rates.
Some FED officials express their concern that the combination of delaying growth and stubborn price pressure can bring the central bank into a binding.
“That is a stagflation boost,” said Austan D. Goolsbee, president of the Federal Reserve Bank of Chicago, in an interview last week. “There is no generic answer to what you should do.”
Mr Bessent and other members of the Trump government argued that the economy they inherited was not as strong as it seemed. In a speech in Washington last month, he argued that growth was effectively supported by government spending and that the economy that support had to be weaned.
“The exaggerated dependence on the previous government about excessive government spending and adaptive regulation left us an economy that may have shown a number of reasonable statistics, but was eventually brittle and was on the way to an unstable balance,” he said, Reuters.
But Jared Bernstein, who served as chairman of the Council of Economic Advisors of former President Joseph R. Biden Jr.
“They inherited an economy that was and remains the strongest of all advanced economies, and they wasted their inheritance in just six weeks with policy chaos that tank company and consumer confidence is with markets,” said Mr. Bernstein.
Government statistics support the idea that the economy was solid when Mr. Trump took office, even with the exception of the role of the government. Government spending played a key role in supporting the economy during the COVID Pandemie, both at the end of the first term of Mr. Trump and early in the Biden government. But it later fell in Mr Biden's term of office, while hiring, investments and expenditure in the private sector remained healthy.
