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Veteran economist Diane Swonk well remembers the difficulty of economic forecasting amid the 2008 financial crisis. The tumult of bankruptcies, bailouts and recession kept blurring her vision.
That makes today's hazy outlook all the more frustrating. At a moment of solid economic fundamentals, what confounds forecasting now are the mercurial whims of a single man – President Donald Trump.
"You're one tweet away from a U-turn on policy," Swonk complains. That's the Trump tax on America's economic stability.
Among the many ways Trump has shattered White House norms, his impulsive public communications rank among the most consequential. By inspiring investors or spooking them, his tweets and impromptu utterances can send stock values spiking or plummeting – and then back again hours later.
That phenomenon has played out most conspicuously on trade policy. There, unlike with legislation, the president has the power to act unilaterally. On steel and aluminum imports from Canada, Mexico and the European Union, and on a broad range of goods from China, he has used it by imposing tariffs or threatening to.
Recent months have brought recurrent turbulence as White House officials and their counterparts in Beijing seek to resolve the president's complaints about Chinese trade practices. Financial markets have reacted negatively to signs of trade war – as with Trump's December 2018 tweet suggesting that negotiations may not succeed.
"But if not remember, I am a tariff man," the president warned. The Dow Jones Industrial Average fell by 799 points that day, closing at 25,027.07.
Because Trump uses stock values as a measure of his own performance, he or his aides often follow such drops by tempering his statements. For much of 2019, markets rose as investors took comfort in expectations of a truce without much economic bloodshed.
Trump encouraged that belief by tweeting in late February that he'd extend his March 1 deadline for an escalation in tariffs on Chinese imports. He cited "substantial progress" in their "very productive talks."
By the end of April, investors had good reason to believe negotiators would justify their optimism. The Dow closed April 30 at 26,592.91 as the U.S. and China prepared to reach a deal with one more round of talks in Washington the week of May 5.
Then reports that Trump had folded on a key cybersecurity demand roused the president's fear of appearing weak. He tweeted plans to apply more tariffs, rattling markets anew.
By May 7, the Dow had dropped 539 points, or 2%. Over the following two weeks it has fluctuated within a range of roughly 1,200 points, closing on Wednesday at 25,776.61.
Now China has set a deadline of June 1 for escalating its retaliatory tariffs on U.S. imports without a deal. Investors can only watch and wait to see if Trump's characteristic negotiating bluster hardens into prolonged trench warfare.
Because Trump has deferred to Wall Street before, hope continues to outweigh fear. But Swonk says, "I don't think they're pricing in the risk."
That's partly because of Trump's vulnerability as he moves toward a 2020 reelection fight. Cracking down on China over trade represented a core 2016 appeal to his blue-collar base.
And it's partly, she adds, because U.S. policy "can change in a nanosecond" whenever a president under pressure from Congressional and law enforcement investigations picks up his smartphone. Wall Street employs algorithms to divine market impacts of particular words in presidential tweets, but no one can be certain of their accuracy.
Economic analysts have always dissected signals from Washington to assess the impact of policy shifts. Even today, they have learned to filter out some Trump messages, such as his admonitions to companies about plant closings and worker layoffs.
"Over time it's noise," Swonk explains. "Everyone has to start putting on noise-cancelling headphones."
But presidential authority – and the way Trump wields it – sets trade battles apart. A conflagration could even tip the economy into recession, with Twitter providing the match.
"There's nothing comparable" from previous administrations, Swonk concludes. "That's what unique with this president."