Impeachment fight poses wildcard for Trump economy

The looming threat of President Trump’s impeachment is adding another flashpoint to an uncertain economic outlook for the U.S.

Trump’s trade battles, impending recessions across Europe, and rising tensions in the Middle East have taken a toll on the slowing U.S. economy.

The U.S. has held steady even as job and economic growth have faded throughout 2019, threatening an unemployment rate near record lows. Consumer confidence and spending have also declined through the summer, due in part to a sharp escalation in the U.S.-China trade war.

{mosads}With trouble on the horizon, Trump has warned of economic ruin if Democrats proceed with impeachment, even after spending months downplaying the threat of a recession.

“If they actually did this the markets would crash,” Trump tweeted Thursday, a day after House Speaker Nancy Pelosi (D-Calif.) announced the Democratic caucus would begin an impeachment inquiry. “Do you think it was luck that got us to the best Stock Market and Economy in our history. It wasn’t!”

While Trump has claimed that his impeachment would bring economic ruin and financial panic, economists say it would take a political catastrophe to spur that level of chaos. But they also warn that the political storm poses serious threats to an economy already vulnerable to major shocks.

“There’s no upside,” said Mark Zandi, chief economist at Moody’s Analytics. “The question is, how big a downside will it be?”

The fate of Trump’s reelection campaign is closely tied to the strength of the U.S. economy, which has long been his most effective pitch to swing voters. Despite his unpopularity in polls, Trump’s approval on the economy had stayed positive until a recent stretch of disappointing economic data. 

Job growth has slowed from an average monthly gain of 223,000 workers in 2018 to 158,000 workers this year. A boom in consumer spending that helped propel the economy has started to fade, increasing by a meager 0.1 percent in August. And steady declines in business investment and manufacturing activity have deepened concerns about the long-term outlook for the U.S.

Trump has scrambled to stave off a downturn with an aggressive push to advance his trade agenda before the 2020 election. The president is counting on better trading terms with Canada, Mexico, China and Europe to boost the economy and his popularity during his difficult reelection bid. 

But to do so, Trump must find a way out of his trade war with China and lift its immense costs off the back of the U.S. economy. 

After weeks of staff-level discussions, trade talks between senior U.S. and Chinese officials are set to take place between Oct. 9 and 10, according to CNBC. The meeting is set to occur just days before tariffs on $250 billion in Chinese goods increase to 30 percent from 25 percent, giving negotiators a small window to strike a truce.

{mossecondads}Trump has remained defiant even as his leverage with China appears to fade, and the pressure of impeachment may prompt him to take a tougher stance. Stephen Myrow, managing partner at Beacon Policy Advisors, also pointed to an impending round of tariffs on European products.

“If his impeachment is perceived as making him look weak, and he wants to look strong,” Myrow said, “lashing out at the EU — which is what he was going to do anyway, is a way to portray strength.”

The impeachment inquiry also threatens the prospects for Trump’s new North American trade deal, the U.S., Mexico, Canada Agreement (USMCA). Trump will need the support of House Democrats to pass the deal, even as the caucus seeks to impeach him.

Democrats have expressed optimism about reaching an agreement with the White House on USMCA despite impeachment proceedings.  But Trump and Republicans have expressed worries that the impeachment fight could scuttle the deal.

Trump on Wednesday said he did not know if Pelosi would have time to bring up USMCA.

“I don’t know whether or not they’re going to have time to do any deals,” he said. “I don’t know that they’re ever going to get a vote because they’re all fighting.”

Both parties have been locked in intense yet productive talks to satisfy Democratic demands for stronger labor, environmental and pharmaceutical standards. Some observers have even suggested that Democrats could flock to USMCA, proving to voters that they can still legislate while they impeach.

Larry Kudlow, the president’s top economic adviser, also floated the theory in a Thursday interview with Fox Business Network. 

“If they’re going to go off the ledge on some crazy idea of impeachment — which is doomed to failure — they might even be more inclined to do something constructive on the [USMCA]” Kudlow said. 

A group of House Democrats leading USMCA negotiations gave Robert Lighthizer, the U.S. Trade Representative, their latest counter-offer Friday, shortly after the caucus quashed a resolution to condemn Trump’s impeachment.

Despite the signs of progress, some experts remain unconvinced that the White House and Democrats can move past their policy differences and the political tensions threatening the deal.

“It’s hard to see Pelosi and the White House striking some deal over the next few months while it is very likely that she’s leading the Democrats to draft and vote in favor of articles of impeachment,” Myrow said.

“I find it hard to believe that she was going to give a win to Trump on one of his top items without getting something in return,” he continued. “She’s gonna want something that makes it look like a big win for the Democrats, and Trump isn’t going to give it up.”