President Trump’s Wants and Policies Are At Odds

Donald Trump has never been shy about telling people what he wants and what he doesn’t want. That was true long before he became president and it has continued since he entered the White House in 2017. Unfortunately what the President says he wants and his own policies are contradictory to one another in several instances.

Let’s start with the current trade tensions. President Trump has made it very clear that he wants to lower the trade deficit. But in an interview with CNBC from Davos back in January he stated, “The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar.” Those two wants run counter to one another. If the dollar strengthens, that will make our trade deficit worse as consumers can buy more imported goods with the same amount of money.

What we have seen since January is that the dollar has indeed strengthened and especially since mid-April. There is a combination of factors at work here. Interest rates have been boosted domestically and appear as though they will continue to be boosted by the Fed for the foreseeable future and that makes the dollar more attractive against currencies for countries that are cutting or maintaining interest rates.

In addition to the two bumps to the Fed Funds rate, we have the consequences of the new tax structure that I wrote about in December. The repatriation of overseas cash was bound to have an impact on the dollar as overseas currency was converted back into dollars to be brought and held domestically.

Speaking of the tax bill and its passing, one of the biggest goals for those changes was to boost the GDP of the United States beyond the 2%-3% we have been averaging since the post-financial crisis years. We are seeing the benefits of those tax cuts and analysts expect the second quarter GDP growth rate to come in above 4% when the numbers are released on July 27. That is what we wanted, however the current trade tensions could unwind those gains in GDP in a hurry if the tariff war continues for an extended period. What we may gain in one sector will be offset by a loss in another sector. Placing tariffs on autos made in the European Union may help domestic automakers, but it will also hurt as the EU slaps tariffs on other goods and the demand for products produced here will decline.

Last week President Trump voiced his thoughts on the interest rate hikes and how he is “not thrilled” with them. He believes that the interest rate hikes will undo everything that has been gained from the tax cuts. And he could be right in that regard, but the growth in GDP has to be countered by a slight bump in interest rates or it could lead to a much higher inflation rate than the Fed is comfortable with. From a personal standpoint, I don’t like seeing interest rates go up either. But from a professional standpoint and as a former economics student, I thought the interest rate bumps should have started earlier than they did.

Another item that has garnered the President’s attention, more so in 2017 than in recent months, was the record levels for the stock market. He made several comments and tweets about the high levels and how it showed the success of his administration for business growth, etc. Now he seems to be less consumed by it and has used the high levels as an excuse to back his trade policy. Just last week in an interview with CNBC he stated, “This is the time. You know the expression we’re playing with the bank’s money.” He went on to add that, “We are being taking advantage of and I don’t like it. I would have a higher stock market right now. … It could be 80 percent [since the election] if I didn’t want to do this.”

One more area where there is a contradiction is with his treatment of different companies. Last week he tweeted about the European Commission fining Google, admonishing them for the fine, “I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!” Then on Monday he tweeted about Amazon and how the Washington Post. This time claiming that “many” feel antitrust claims should be brought against the company, “In my opinion the Washington Post is nothing more than an expensive (the paper loses a fortune) lobbyist for Amazon. Is it used as protection against antitrust claims which many feel should be brought?”

Admonishing the European Commission over the fine on Google for what they saw as unfair business practices and then taking aim at Amazon and claiming antitrust action should be taken against them is nothing more than sour grapes. There is no love lost between President Trump and the Washington Post, but to criticize the EU over Google and then take aim at Amazon is hypocritical and contradictory for what is supposed to be a pro-business administration.

I have stated this several times before, but I will repeat it again. The goal of leveling the playing field when it comes to international trade is one that needed to be addressed. But there will be consequences to the actions that we take. As I tell my children quite often, there is a big difference between a want and a need. I hope President Trump will put our countries needs above his wants.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

One comment

  1. Rick, IIRC, inflation is not caused by businesses raising prices or employees demanding higher wages. Inflation is caused by government creating more money than is justified by the increase in goods and services available. It can be exacerbated by velocity, the speed at which available currency changes hands. In fact, if the public gets panicked because they perceive that the money will be worth a lot less tomorrow than today, velocity goes up so much that government can’t control the value of the currency at all.

    In addition, the bogeyman of deflation is a used to convince the public that we have to have inflation instead. Productivity and standards of living have improved during periods of deflation as well as during periods of little or no inflation. Inflation hurts those who have saved for retirement and those who work in blue-collar jobs where wages have not kept up with inflation. Just two percent inflation (the Fed target) will destroy a third of a widow’s or retiree’s savings in twenty years.

    One of the few legitimate jobs of the Federal government is to maintain a stable currency. Destroying citizen’s savings is not fulfilling the mandate of the Constitution.

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