The Washington Post - 23.08.2019

A8 EZ RE THE WASHINGTON POST.FRIDAY, AUGUST 23 , 2019

scrambled this week to assemble a
menu of actions Trump could take
to avert an economic downturn.
Few aides have a firm sense of what
steps he would seriously consider,
in part because he keeps changing
his mind.
Ideas that have been discussed
include imposing a currency trans-
action tax that could weaken the
dollar and make U.S. exports more
competitive; creating a rotation
among the Federal Reserve gover-
nors that would make it easier to
check the power of Chair Jerome
H. Powell, whom Trump has
blamed for not doing all he can to
increase growth; and pushing to
lower the corporate tax rate to 15
percent in an effort to spur more
investment. Some, if not all, of
these steps would require congres-
sional approval.
“Everyone is nervous — every-
one,” said a Republican with close
ties to the White House and con-
gressional GOP leaders. “It’s not a
panic, but they are nervous.”
This article is based on inter-
views with more than 25 current
and former administration offi-
cials, lawmakers, and external ad-
visers who have been in contact
with Trump and his team through-
out August. Some spoke on the
condition of anonymity because
the White House has been request-
ing that allies and aides keep its
economic message intact.

Self-inflicted wounds

Compounding Trump’s situa-
tion, some of the economy’s strains
appear to be of his own making, as
uncertainty surrounding his trade
war with China has frozen much
investment nationwide.
“The China trade war is causing
most of this,” said Sen. Lindsey O.
Graham (R-S.C.), who is close to
Trump. “It’s just the world econo-
my is affected when China has a
problem.”
Trump has publicly gloated
about economic problems in Chi-
na and Europe — even declaring
last Sunday that “the world is in a
recession right now” — but those
strains appear to be holding back
U.S. growth as well.
The economic message emanat-
ing from the White House is a
product of tensions and debates
about how to handle that bracing
reality — and Trump’s own stub-
bornness on trade strategy and his
anger about news coverage of the
economy.
That has led to a month of tense
economic policymaking and mar-
kets. On Aug. 1, Trump announced
new tariffs against Chinese im-
ports. On Aug. 13, he delayed most
of them, worried about the impact
on the U.S. economy. On Aug. 20,
he said he was considering new tax
cuts. The next day, he said he had
changed his mind.
Amid it all, stocks proved highly
volatile and the U.S. and global
bond markets rang numerous
alarm bells, a far cry from the era of
synchronized global growth that
had marked Trump’s first two
years in office. Other economic soft
spots also have emerged, particu-
larly in U.S. manufacturing, a sec-
tor Trump had promised to revive.
Although Trump sold himself to
voters in 2016 as a master busi-
nessman who knew just what to do
to rev up the economy, his steward-
ship could now have major impli-
cations for his reelection chances,
especially if the more pessimistic
forecasts prove prescient.
But beyond the political impact,
Trump’s handling of the economic
slowdown has opened up the
White House to scathing criticism
from members of past economic
teams, who have contended that
the flailing process and lack of
traditionally credentialed econo-
mists at the helm could exacerbate
a downturn.
“The irony here is that Trump’s
erratic, chaotic approach to the
economy is probably the most sig-
nificant economic risk factor in the
world right now,” said Gene Sper-

ECONOMY FROM A1 ling, who served in top economic
roles during the Clinton and
Obama administrations. “Their re-
sponse is just to show even more
erratic behavior. It’s economic nar-
cissism. It’s economic policy by
whim, pride, ego and tantrum.”
White House spokesman Judd
Deere defended the administra-
tion’s approach and said officials
remain very optimistic about the
economy’s performance.
“The White House does not
think we are imminently headed
for” a downturn, he said. “The fun-
damentals of the economy are
strong because of this president’s
pro-growth policies.”
Trump has lauded the economy
as the best in U.S. history, while
some of his Democratic rivals have
said it is barreling toward a reces-
sion.
Neither of those descriptions is
quite accurate, most economists
say. Parts of the economy, particu-
larly consumer spending and the
labor market, remain robust. Re-
tail sales are strong, and wages are
rising. But business investment,
the ballooning federal deficit and
trade concerns are creating pres-
sure that White House officials
have struggled to explain away.
And some of these problems are
worsening.
“This administration has not
done itself a whole lot of favors in
talking about the economy,” said
Tony Fratto, who served in senior
roles during the George W. Bush
administration at the White House
and the Treasury Department.
“They have done a lot of communi-
cating that is verifiably false on the
economy.”

Aides’ battles Trump has a lean and increasingly combative economic team, whose members often are at odds with one another on trade and tax policy. Almost all are deferential to the president, but they habitually jostle to advance their causes with him, sometimes maneuvering behind one another’s backs. White House National Eco- nomic Council Director Larry Kud- low and Treasury Secretary Steven Mnuchin have fought for months over Kudlow’s push to index capital gains taxes to inflation, for ex- ample, with Trump caught in the middle. The proposal would re- duce taxes on investment income, primarily benefiting people with higher incomes, but most economists think that would do little to spur immediate economic growth. White House economic team meetings are less structured than when Trump’s aides collectively pushed a giant corporate and indi- vidual income tax cut into law two years ago. Sometimes aides walk out unsure of what was agreed on. Sometimes nothing was agreed on. But that format drew little scru- tiny when advisers were used to primarily boast about the economy’s strength to the news media in the past year. Now, these aides have come under extreme pressure this month as Trump has gyrated in his economic approach and vented his frustration inside the West Wing. Mnuchin has privately dis- agreed with key aspects of Trump’s approach to the economy, according to people familiar with the matter. But he has largely disap- peared from public view during the turbulent month. Kevin Has- sett, a former Council of Economic Advisers chairman and a frequent media commentator, has left the administration. Stepping into their void is Kud- low, a Reagan administration official and longtime television commentator; senior trade adviser Pe- ter Navarro, an academic with a long history of anti-China posi- tions; and Trump himself, who often undercuts or contradicts his aides, only to reverse himself the next day. Republicans on Capitol Hill have sensed the White House’s stress and said the goal is to beat back negative public opinion. “It’s not economic data that’s

driving the concern as much as headlines and the stock market having a big drop,” said Rep. Mark Meadows (N.C.), a close Trump ally. “It becomes a headline, then it can become a self-fulfilling prophecy that is not based on any underlying economic fundamentals. There’s a real proactive effort by the White House to try and make sure the economy continues in a robust manner.”

Tariff attack, retreat The current economic drama began on the first day of this month, when over the objection of some senior advisers, Trump announced that he would impose tariffs on $300 billion worth of Chi- nese imports. Just days earlier, the president had signaled that he was ready to back down from his fight with the Chinese, speculating that Beijing wanted to wait until after the 2020 election to negotiate a trade deal. But a fruitless visit Mnuchin and U.S. Trade Representative Robert E. Lighthizer made to Shanghai infuriated Trump, several people briefed on his reaction said, and he announced the tariffs in a Twitter post shortly after they returned. At the time, Navarro was the only aide who supported the move. That announcement began a chaotic chain of economic and political events that White House aides have struggled to control ever since. The following weekend, China’s currency weakened, a move that would make its exports more com-

petitive, and Chinese officials signaled that they would not be in- creasing purchases of U.S. farm products, as Trump had demand- ed. So on Monday, amid fears that the trade war would spiral out of control, the Dow Jones industrial average fell 767 points. Trump strongly urged Mnuchin to label China a currency manipulator, a symbolic yet harmless shaming that the secretary had resisted because the Treasury Department’s indicators didn’t show that China qualified for such a label. But under pressure, the treasury chief did so shortly after the stock market closed. Meanwhile, U.S. business executives panicked about the scope of Trump’s new tariffs, and White House officials were bombarded with complaints. So Trump began drawing up plans to delay the tariffs on products such as laptop computers, shoes and clothing. This posed a problem, though. Trump had insisted for more than a year, without evidence, that China was paying all of the tariffs. This was false, because tariffs are paid by U.S. importers and collect- ed by U.S. Customs and Border Protection. For the first time in months, Trump’s economic message showed signs of cracking. He would soon admit that his economic approach could harm consumers. On Aug. 13, Lighthizer’s office issued a news release with little fanfare announcing that tariffs on nearly $160 billion in Chinese imports had been delayed until Dec.

Trump would later tell report-
ers that the intent was to ensure
that Americans didn’t pay higher
costs during the holidays, one of
the first times he had acknowl-
edged that the tariffs raised costs.
“What we’ve done is we’ve de-
layed it so they won’t be relevant in
the Christmas shopping season,”
he said at the time.
The stock market rallied amid a
sense that Trump was preparing to
back down, but economic fears
grew deeper the next day.

A bond market omen On Aug. 14, key parts of the U.S. bond market tipped over, creating an “inverted yield curve,” an un- usual condition in which investors are rushing to buy ultrasafe long- term assets and that often pro- ceeds a recession. The Dow Jones industrial average fell 800 points. In the middle of the day, Trump tried to spin the inversion as a positive thing, saying it was a re- flection of how attractive U.S. debt was to consumers. But after the stock market closed, his Twitter feed took on a more furious tone. He cited the “CRAZY INVERT- ED YIELD CURVE” and blamed a “clueless” Powell from the Fed. Through the week, White House officials became increasingly agi- tated that the public sentiment about the economy seemed to be tipping. Trump, aides said, is ob- sessed with media coverage of the economy, and thinks Americans will believe negative news and stop spending money. This exaspera- tion began several months earlier. “In the last couple of weeks, when the market dipped down, it did strike an amount of fear within the White House,” a White House official said. “There’s been a sense going into 2020 that we can bounce back from virtually every- thing if the economy stays strong.” The day after the yield curve inverted, Kudlow said in an inter- view with The Washington Post that the economy was much stron- ger and more resilient than people were making it out to be. “What I see is a pretty good second half coming up,” he said.

Assailing coverage Trump, however, kept talking with advisers inside and outside the White House and was getting a mixed picture. Still, White House officials complained that news outlets were elevating negative economic news in a way that dis- counted the progress the White House had made. Kellyanne Conway, counselor to the president, said the media coverage of any economic downturn is “way overblown.” “If it’s not Russia, it’s racism. If it’s not racism, it’s a recession,” she said. Kudlow took a lead role in the

White House’s pushback on Aug. 18, appearing on two television programs to try to quell fears of a recession. “I don’t see a recession at all,” he said on “Fox News Sunday.” On NBC’s “Meet the Press,” he urged Americans, “Let’s not be afraid of optimism.” A few hours later, though, Trump stepped on that message. Speaking to reporters in New Jer- sey before returning to Washing- ton, he said, “The world is in a recession right now,” attempting to draw a contrast with the United States, which is not. By the time Kudlow and Trump made their comments, a free- wheeling policy process had taken hold. Some White House officials had begun discussing whether to slash payroll tax rates, although a number of senior officials were never told this was under consideration. Americans pay 6.2 percent of their paychecks to fund Social Se- curity, but in the past Congress has temporarily reduced this payment as a way to spur more spending and help the economy in a downturn. When The Post reported that the idea was being discussed on Monday afternoon, the White House issued an anonymous state- ment saying the idea wasn’t “under consideration at this time.” The reason for trying to shoot down the news, two people briefed on the planning said, was a sense that the public would think the White House was panicking if it was re- vealed that it was contemplating what could be a $100 billion tax cut. Bad economic news continued. On Monday night, news outlets reported that U.S. Steel could be temporarily laying off up to 200 workers at a Michigan facility. Trump had claimed that his trade policies had revived U.S. Steel around the country, but the company was confronted with lower steel prices and weaker demand than expected. By Tuesday, Trump was under growing pressure to explain how he was preparing for a possible slowdown. He said that he was considering a payroll tax cut, as well as the capital gains change Kudlow had long advocated. His comments stunned some aides, but others shrugged them off, aware that it is nearly impossible to be up to speed on what Trump is thinking at any given moment, even on particular issues such as tax policy. When Trump made the comments, his economic team was scattered. Mnuchin was on vaca- tion, and acting chief of staff Mick Mulvaney was 2,000 miles away at a donor event in Jackson, Wyo. Mulvaney struck an upbeat but realistic tone about the economy, according to one attendee who was not authorized to speak publicly. He noted that there were signs of an economic slowdown but ar- gued at length that the fundamentals of the economy are strong. He said if there was a recession, it would be “moderate and short,” according to an attendee who wasn’t authorized to disclose the comments. When aides presented Trump with the news that the economy could weaken in the next year, it was just one scenario. White House officials stressed that they still expect the economy to perform very strongly this year, with the gross domestic product growing 3 percent from 2018. Few others are as optimistic. The Fed estimates that GDP will grow just 2.1 percent. By Wednesday, Trump had re- versed himself again. He told reporters before boarding a helicop- ter that he had decided to rule out any new tax cuts after all. “We don’t need it,” he said. “We have a strong economy.” [email protected] [email protected] [email protected] [email protected]

Faced with economic strains, chaotic White House response

PHOTOS BY JABIN BOTSFORD/THE WASHINGTON POST In remarks to reporters Wednesday, President Trump, above, said he was no longer considering tax cuts, citing the “strong economy.” Treasury Secretary Steven Mnuchin, below left, and White House National Economic Council Director Larry Kudlow have been at odds for months on economic policy.

BY ABHA BHATTARAI

High-profile bankruptcies and
store closures have gutted some
of the nation’s biggest retailers —
and that’s during good economic
times.
Now, amid fears that the Unit-
ed States is headed toward a
recession, analysts say another
reckoning might be in store as a
slowing global economy, a vola-
tile stock market and new tariffs
are likely to take their toll on
American consumers in coming
months.
There is little middle ground
left in the retail industry: Compa-
nies are either doing brisk busi-
ness or struggling to hang on,
analysts say — a trend that is
likely to become even more pro-
nounced if the economy sours.
“If there’s another recession —

and I think there will be soon — everyone gets knocked down,” said Mark Cohen, director of retail studies at Columbia Busi- ness School and the former chief executive of Sears Canada. “The strong get back on their feet. The weak don’t recover.” Analysts say the gulf between the sector’s winners and losers is expected to widen in coming months, as illustrated by the latest earnings season. Walmart, Target and Lowe’s all posted bet- ter-than-expected profits in the past week, boosting shares of their stock and reassuring investors that U.S. consumers are still opening their wallets. Target’s stock surged 20.4 percent Wednesday to close at an all-time high of $103 after it posted a 17 percent increase in profits and raised its expectations for the rest

of the year. Not as fortunate: department stores and apparel retailers. Macy’s and J.C. Penney posted disappointing earnings last week, causing their share prices to drop by double digits and dragging down the entire retail sector. J.C. Penney has lost $196 million so far this year and expects sales to dip nearly 10 percent in 2019. The company’s stock — trading at about 60 cents a share — is at risk of being delisted from the New York Stock Ex- change. Macy’s shares have fallen 21 percent since last week. Luxury chain Barneys New York, meanwhile, filed for bankruptcy protection this month, after years of struggling to compete with online retailers. The parent companies of Ann Taylor, Victoria’s Secret and J. Crew also

have struggled in recent months. Urban Outfitters this week reported a 35 percent drop in quar- terly profits, which executives attributed to declining store traf- fic and softening demand for its women’s apparel. So far this year, retailers have announced the closures of more than 7,500 stores, according to data from Coresight Research. By comparison, 5,500 stores were shuttered in 2018. A number of national chains, including Pay- less ShoeSource and Gymboree, have also filed for bankruptcy protection citing declining sales and mounting debt. “It’s a real mixed bag of results we’re seeing,” said Neil Saunders, managing director of GlobalData Retail. “The retailers that are doing well are seeing great re- turns, while the weaker ones are

being left behind. The real concern is: What happens if the economy slows down? Polariza- tion is going to become even more of an issue.” The coming months will be crucial for retailers as they brace for the Trump administration’s new tariffs on $300 billion worth of Chinese imports — including toys, televisions and clothing — that will go into effect in mid- September. President Trump said last week that he would push back some of those tariffs to Dec. 15 “so that they won’t be relevant for the Christmas shopping season,” but retailers say the constant uncertainty is already changing how they prepare for the busy holiday period. Home Depot this week low- ered its sales expectations for the rest of the year, citing “potential

impacts to the U.S. consumer arising from recently announced tariffs.” The sector’s winners — which include Target, Walmart, Lowe’s and Dollar General — have spent the past decade investing in their stores and websites to keep up with consumers’ changing priori- ties. Walmart and Target have spent millions building up private-label brands and adding in-store pickup and delivery ser- vices as they compete with Ama- zon for a larger share of the market. (Amazon founder Jeff Bezos owns The Washington Post.) Analysts say those investments are likely to pay off in an economic slowdown, as Americans tend to trade down to lower- priced retailers to save money. [email protected]

Retailers struggled during boom times. What happens if there’s a recession?

The Washington Post - 23.08.2019

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