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Trump's dangerous obsession with the markets
FROM Day 1 in the Oval Office, US President Donald Trump has shown a unique obsession with the financial markets, tweeting that high stock prices proved he was making America great again. But a new chapter opened in October, when the markets dropped sharply, and Mr Trump began making critical presidential decisions with an eye to pushing stock prices back up.
As soon as the markets turned downwards, Mr Trump softened his hard line on Chinese trade practices, trying to quiet market fears that his tariff threats against Beijing would start a global trade war. Then he started attacking the United States Federal Reserve, saying its interest rate policies were undermining stock prices, and followed with rants about firing the chairman of the Fed, Jerome Powell.
And last week, Axios quoted a source who had spoken to Mr Trump as saying that the president had delayed his threat to close the Mexico border out of concern over how the markets would react.
For Mr Trump to base serious decisions about trade, monetary policy and immigration on market mood swings ensures that the zany uncertainty of his tenure will continue to reach new heights.
Mr Trump's sudden moderation on China was particularly striking because, in an otherwise mercurial career, he had remained consistent on trade. Going back to the 1980s, Mr Trump has been accusing Asian competitors in particular of using unfair trade deals to steal America's lunch.
Moreover, Mr Trump has been drawing broad support for his hard line on trade with China, even among his critics in Congress and in Europe. Many of them agreed that China was using state power to dominate the global information technology industry, exclude American companies from its domestic market and steal intellectual property. They were openly rooting for Mr Trump to win on this issue, and to cut a tough deal.
Yet when the markets fell on fear of a US-China trade war, Mr Trump began to retreat. After taking office, his tweets on China attacked it for militarism, currency manipulation and unfair trade practices right up until the markets dropped in October.
Mr Trump's first conciliatory tweet came on Nov 1, describing a pleasant chat about trade with Chinese President Xi Jinping, and he has been talking up their "incredible relationship" and progress in trade talks since.
By last month, amid reports that Trump advisers were calculating how big of a "stock market pop" they could expect from a trade deal, Washington insiders from both parties were worrying aloud that the president might accept any deal China would sign.
Mr Trump, meanwhile, was executing a similar about-face on the Fed. As a candidate, he had attacked the central bank for keeping rates so low and inflating "a big fat ugly bubble" in the markets. Once he took office, Mr Trump stopped tweeting attacks on the Fed, until November, when he began to blame the central bank for dampening market spirits with high interest rates. In recent weeks, Mr Trump has not only fulminated about replacing Mr Powell, he has also started considering market-friendly loyalists for seats on the Fed board of governors.
Mr Trump's most recent market-driven U-turn appears to have come on immigration, another subject near and dear to him. So far, the stock markets have not reacted negatively to his aggressive efforts to secure funding for a border wall, including the government shutdown and the declaration of a national emergency. Nonetheless, when Mr Trump backed off on his threat to close the southern border, the Axios source explained the president's decision this way: "It's the markets. Closing the border, the markets would plummet."
No president has shown this kind of deference. Jimmy Carter, Ronald Reagan and both George Bushes mentioned the stock markets rarely and cautiously. Bill Clinton counselled against responding to their gyrations. In early 2009, Barack Obama suggested it was a good time to buy battered American stocks and was proved right when the markets hit bottom a week later. But Mr Obama was criticised for acting as "stock picker in chief" and did not talk about stock prices again as president.
Mr Trump is not only reading the markets as a daily measure of his success, he is also shaping policy to keep prices high. And recent market rises have rewarded him for it. After Mr Trump turned conciliatory on China, the Fed announced it was suspending further rate increases, and stocks began climbing back toward record highs.
So who's in charge: Mr Trump or the markets? One critical test is the US-China trade talks, which are set to wrap up soon in a meeting between Mr Trump and Mr Xi. A tough agreement would help confirm that markets aren't completely dictating policy.
Even then, Mr Trump's willingness to bend policy to please the markets is now clear - and it's risky. In recent years the stock markets have grown larger than the economy, and they are now big enough to take the economy down with them when they deflate. Policymakers are wary of poking this beast, but feeding it will only make the markets larger and more demanding. NYTIMES
- The writer, a contributing NYT opinion writer, is chief global strategist at Morgan Stanley Investment Management.