Art Of The Trade Deal Counters Recession Ruminations

Often when US Presidents can score a single major legislative accomplishment during their tenure it’s enough for the history books. Reagan had the massive Supply Side tax cuts, Clinton passed the North American Free Trade Agreement (NAFTA) and Obama’s landslide election mandate gave us Obamacare.

Trump made history with his historic corporate and personal tax cuts in 2018. While his major tax changes may be worthy of being notable legislation, it’s increasingly likely that the self-proclaimed Tariff Man will be remembered for his plethora of prolific Trade deals. We pass no judgment upon any President here, but the Trump trade deal steamroller has now secured new deals with Mexico, Canada, South Korea, Japan and now a partial deal with China. With the Brexit Bombshell ushering in a Boris Johnson mandate we would expect yet another major new trade deal between the UK and Trump in 2020 once Brexit is formalized.

While economists add a fraction of a percent to US GDP for these changes, we believe many underestimate the vital importance of economic sentiment in propelling capital spending and personal consumption. Assuming these recent successes on the trade front are codified and enforced, they should provide a higher than consensus boost to the economy in 2020. When the Phase One China Trade Deal is formalized in January along with the USMCA (NAFTA II) deal with Canada and Mexico, then we will see how correlated business sentiment is with actual business activity and economic growth. When Trump was elected there was an immediate related surge in economic optimism along with a commensurate jump in the industrial economy within a few months. Will these trade deals along with a newly accommodative Fed be enough to turn the sagging manufacturing economy upward? We’ll revisit this in the Spring.

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Manufacturing orders surged when Trump was elected and fell when his trade war kicked in. While they have been flat for the past 18 months there could be some pent up order demand as confidence returns with the cessation of tariff battles and persistent economic threats curtailing industrial spending.

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