This piece presents an extremely paradoxical hypothesis: that a downturn in the economy between now and early next year could sharply increase Mr. Trump’s odds of re-election.
It shouldn’t be controversial to note that economic strength into an election for any first-term president seeking another four years is a big key to victory. We haven’t had a one-term elected president since George H. W. Bush lost to Bill Clinton in 1992. The economy was weak as a consequence of the Savings and Loan crisis of the early 1990’s, and the Clinton campaign took advantage. Ross Perot’s 21% share of the final vote didn’t help Bush either.
Before that, you would have to go back to 1980, when incumbent Jimmy Carter lost to Ronald Reagan. The context was a rare combination of high unemployment and high inflation that led to the infamous double-dip recessions in 1980 and 1982. Before that, you would have to go all the way back to the 1930’s (we aren’t counting Gerald Ford because he was never elected in the first place).
In other words, the Presidency is an 8-year affair unless you run into major economic problems right in front of your re-election attempt.
Hence, it may seem counterintuitive to think Mr. Trump should be rooting for weak economic data over the next 3 months. But, that’s exactly what we believe. And given his decision this week to step up tariffs on China, we think he may be playing from this playbook right now.
The fracture in place right now in the Democratic party is likely the most dramatic since 1948 in terms of ideological division among two distinct camps. Given current polling numbers, we believe likely democratic primary voters believe Trump will be difficult to beat in 2020. That would explain Biden’s lead — Joe Biden isn’t what progressives really want, but he’s a whole lot better than Trump for another four years.
In other words, if it’s going to be a close fight, Biden will work better with independents and swing voters, so progressives are getting ready to “love the one they’re with” since they likely won’t be able to “be with the one they love”, to badly garble Crosby, Stills, and Nash.
However, that all changes if Trump starts to look easy to beat.
If primary voters start to get the sense that the economy is tipping over into primary voting next year, then we may see the focus change from pragmatism to idealism in dramatic fashion, giving a large boost to Bernie Sanders.
This is the twist: if such an economic swing emboldens the left wing to drop pragmatism and adopt an aggressively idealistic path, and then we see the economy pick back up next summer, then Trump might end up facing Mr. Sanders with a strong economy, turning the election into a referendum on capitalism just when capitalism is working well for everyone.
And this isn’t at all a far-fetched outline of future events.
Trump’s trade war was just unwittingly subsidized by the Federal Reserve — who cut interest rates this week, with uncertainty surrounding trade being an explicit causal factor. The White House is well aware of this relationship — ‘if we escalate tariffs, the Fed will be forced to stimulate’.
That allows Trump to take extreme steps against China over coming months, supported by ever-easier Fed policy.
Such an aggressive move could even force China to capitulate, ending trade-related uncertainty and pushing fresh business investment back into the economy with the Fed in no hurry to re-hike policy until inflationary problems start to crop back up.
The big point is this: a few months of stalling economic data could easily appear on the near horizon as businesses recoil amid heightened tariffs. And that could easily be mistaken for an oncoming recession, spurring a more aggressively idealistic primary outcome from the Left, which could end up presenting Mr. Trump with a gift down the road.