Is Trump Killing the US economy?

The one one entity that will never join the MAGA cult

In a matter of days, economists have gone from being sanguine - if not upbeat - about the US economy to thinking that a slowdown has started, maybe even a recession. There has been some data that has prompted this abrupt change of view but the biggest driver has been the daily - hourly - jaw-dropping announcements from the Trump administration that all come under the heading ‘chaos’.

There are the specific economy killers like tariffs coupled with the overarching sense that policy uncertainty - especially the flip-flops - will persuade many of us - consumers and businesses - to spend less. Particularly business: when the future is utterly uncertain, with lots of potentially bad outcomes, the best thing to do is build cash reserves. A ‘just in case’ spending strategy. That means cutting back on capital spending, job hiring and all other discretionary outlays.

Bloomberg, The Economist, the FT and prominent analysts like Noah Smith all begin with the same chart. One that comes from the Atlanta Fed that purports to show the current quarter will witness a big slowdown - shrinkage - in the US economy. Rather than the +2% ish growth we are used to, the Fed now estimates a minus sign in front of that number. If true - a big if - the economy has fallen off a cliff.

There are linkages, of course, between the tariff nonsense and overall uncertainty. From Bloomberg:

This was the title of a piece sent to me by Bloomberg in recent days:

If America is a business, it is being run into the ground

From The Economist:

That point about ‘reality’ is, perhaps, a hint about the biggest question of all: when will reality bite?

The Oval office mugging of Zelensky; all the other increasingly bizarre - if not psychotic - words and deeds; the rambling reality-free quasi State-of-the-Union speech to Congress; Vile Vance’s deranged rants in favour of the AfD and grave insults to British and other military partners - all are consistent with my view that we are witness classic cult-like behaviour.

But there is one entity that is incapable of signing up to the cult. And that’s the economy.

How bad is the damage already? While considerable, there are doubts whether it as bad as the Atlanta Fed suggests. For instance, stocking up on imports ahead of promised tariffs arithmetically subtracts from GDP. But the direction of travel is clear.

Nobody has any idea about the extent of further damage. The longer the cult continues to do what it does, the more reality - the economy - will be hurt.

The big question: will reality cause the cult to change course? The evidence from the history of cults is that few change their minds, at least not quickly. This could, economically speaking at least, get very ugly.