Trump Fiddles While America (Slowly) Burns

A few days ago, the New York Times ran a feature story on China’s “Army of Robots,” in which it noted, “Factories are being automated across China at a breakneck pace. With engineers and electricians tending to fleets of robots, these operations are bringing down the cost of manufacturing while improving quality.” Two days later, the Wall Street Journal also published a feature article, “Xi Is Ratcheting Up China’s Pain Threshold for a Long Fight With Trump.”

The significance these events cannot be overstated.

Where Donald Trump has injected chaos into both American politics and the American economy, “Xi has focused on stability.” Whether Trump has intentionally created such a madcap environment because it will keep his adversaries off balance or, more likely, because he lacks a sufficient grasp of key issues to develop an effective policy initiative and stick to it, he is succeeding only in eroding every advantage the United States once enjoyed in a war with a formidable opponent that he foolishly chose to try to intimidate.

For example, one of Trump’s key stated goals, the whole point of his tariff barrage, is to bring manufacturing back to the United States, and in theory, away from China. But he has (of course) been vague on whether he is more interested in the products that are manufactured or the jobs that will be created to fabricate those products. If, like the Chinese, these new factories, which Trump seems to think can be wished into being out of thin air in a matter of weeks or months, rather than the years it will actually take to build them, stress robotics, thus keeping prices down and consistent quality up, the number of workers required would be nowhere what he promised his supporters. If, on the other hand, these new magical factories are to be labor intensive, with those hired getting paid an attractive wage, the cost of American goods will remain sufficiently high to price them out of foreign markets.

Either way, the tariff-enabled result will be highly inflationary.

In the past, the United States buffered the impact of cheaper goods from foreign countries—not just China—with its huge advantages in technology and innovation, which, in turn, were direct results of America’s university and graduate school educations being far and away the world’s best. That huge lead had already begun to shrink as other nations, as in basketball, started to nurture their own elite institutions, but Trump’s determination to remake higher education in his own image—an Onion headline in itself—will accelerate that process and leave the United States increasingly vulnerable.

China certainly exerts enormous influence over what can and cannot be taught in its schools, but Xi’s focus is political. He does not cut off funding to elite universities because of personal pique. Instead, he is determined that China outstrip the United States in the very areas that has enabled our superiority and Trump is helping him do it.

All in all, and not just with respect to China, Donald Trump is making this country weaker, not stronger, and many Americans will eventually pay a price for his folly, some a quite severe price.

None of this is a secret and there has been a good deal of speculation as to why all this foreboding has not yet been reflected in the financial markets. Although the price of stocks, swinging wildly even by its current quant-fueled standards, periodically seems on the verge of a 2008-caliber crash every time Trump ramps up his trade war, it then short-term booms as soon as he is forced to pull back—which has thus far been always. The dips are easy to explain, but why the rallies?

The answer is that people not familiar with how the current financial markets work are unaware how trader-propelled they are, just how removed the day-to-day and sometimes long-term positions are from underlying fundamentals, and how much of the action is short-term, with complex trading algorithms dictating the pricing.

Most significantly, computer-based trading allows even the most complex trades to be unwound in a millisecond. That sort of flexibility leaves traders able to be extraordinarily speculative without actually taking much risk. After the professionals have cleared their risk, left to pick up the pieces, as always, are what are euphemistically called “ordinary investors.”

But that does not fully explain the lack of recognition by the trading community of the incipient crisis. Once again, it is short-term potential rather than long-term prospects that provide the explanation. Trump is determined to remove every control and regulation from the business community, allowing them to do precisely what they want no matter what the long term cost. The Onion ran a gag headline about Trump allowing commercial fishing in an aquarium that captures the phenomenon perfectly. If that were the case, there would be lots of quick and easy fish profits up front, then…nothing but an empty tank. (This also very much describes Trump’s business history.) The professionals are perfectly happy to get in because, for them, it is so easy to get out.

This does not sit well with everyone on Wall Street. Among the biggest complainers about how artificial the markets have become? Financial advisers, who have to take endless phone calls from their customers asking why their portfolios are losing money when the DOW or the NASDAQ is way up.

Investors need to be acutely aware that perhaps the earthquake has yet to strike, but the tremors have already begun. The dollar this week traded at a three-year low, despite the fact that the only interest rate cut was in Europe. That fall has led to widespread speculation that the dollar, once the world’s bellwether currency, might be losing its allure with Trump making monetary policy. Existing home sales dropped 5.9% in March, the beginning of the “critical spring selling season,” the biggest drop in more than two years and the worst March since 2009, “near the peak of the financial crisis.” Bond prices have gyrated but are generally down, another indicator of a lack of faith in the underlying economy.

Perhaps most telling in an economy fueled by domestic spending, consumer confidence has been eroding for months, and the Conference Board reported that in March “consumers’ short-term outlook for income, business, and labor market conditions dropped 9.6 points to 65.2, the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead.”

What it seems to indicate is that Donald Trump’s seat-of-the-pants approach to governance has precipitated what, if not unchecked, might quite possibly result in the end of America’s dominance in world affairs. Nations’ welfare, after all, are not determined by short-term blips but rather by the intelligence and political insight of their long-term approach to governance by their leaders, be they elected or otherwise. And, at present, the long term seems to promise little more than a slow erosion of both our values and our prestige.

Can Trump turn all this around? Does he even care to?

Six bankruptcies do not prompt a warm feeling of well-being.