Wolfgang Munchau
I can say safely that nobody understands the economic and political consequences of Donald Trump. I am not likening his policies to one of the greatest scientific discoveries of all time. But what the two have in common is radical unpredictability. In quantum mechanics, unpredictability arises at the time of measurement. Economists have the same problem with Trump. We cannot look at the current slew of economic data to see where this is going. If you are an anti-Trump economic evangelist, you are very likely to get things wrong, just as economists did with Brexit or Trump’s first term.
I expect that the US economy will probably be fine. Before you jump to the conclusion that I am a Trump supporter, I can assure you that I am not. Nor was I a Brexit supporter, though I was critical of the self-defeating arguments of the Remain campaign. I see similar dynamics at work in the US right now. Trump’s critics, both in the US and Europe, keep on underestimating him with predictions of imminent gloom.
They predicted that his tariffs would raise inflation. So far that has not happened. I don’t think it will. Some also predicted that the US stock market would soon crash. In fact, Europeans celebrated the collapse in the S&P 500 that followed the Liberation Day tariffs. They erroneously relied on the markets as a corrective mechanism to frustrate Trump’s tariffs. That did not happen. The markets recovered and never looked back. The overall level of tariffs today is at least as high as those announced by Trump on 2 April. They are bound to get higher still, now that he has slapped a 100% tariff on branded pharmaceutical products and a 50% tariff on Ikea furniture.
It does not look like the stock market will do us the favour of crashing during the Trump presidency. It is quite possible that the S&P 500 will rise from its current level of around 6,400 to 10,000. Market valuations could rise from the stratospheric to the mesospheric to the exospheric. Prices will crash eventually. But that might not happen until the next Democratic president.
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