“It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover? Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear. Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.”
We’ll never tire of republishing the column written by 2008 Nobel Prize-winning economist Paul Krugman for the New York Times shortly after midnight, when Donald Trump’s election was a foregone conclusion after the November 8, 2016 vote. Remarkably, it took less than a day for Wall Street, which had plummeted overnight, to recover and finish in the green. The moral, eight years later, on this election eve when Trump is once again a candidate, can be boiled down to two key points: Trump’s first term in office, right up to Covid-19, was marked by economic success, characterized by growth, full employment and a rise – at last– in wages for those at the bottom of the income spectrum. Second, it is extremely difficult to predict how markets will react.
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The lesson has been learned, if we are to believe some information gleaned from Wall Street mathematicians – the famous quants who build stock market models. They believe that the market is poised to swing. We don’t know if it’s going up or down; we don’t even know which direction it will take according to who wins. Regardless, the market is going to move, and there’s bound to be a way to make money on the backs of the suckers who’ll panic or get overenthusiastic. In the long term, the outlook suggests that the market will stabilize with strong growth, a soft landing, and impressive advancements in American technology. There’s the rosy scenario.
In reality, this year, neither candidate is good news for Wall Street. A Harris win means a promised rise in corporate taxes from 21% to 28% and more regulations against the sky-high margins that American companies make on the backs of consumers. In short, fewer profits, but a more stable and open economy.
The optimum combination
With Trump, it’s a bit of madness in the making. The Republican presidential candidate has promised to impose a 10% tariff on all imports and to deport hundreds of immigrants without permanent residence permits. The maneuver could be implemented in earnest as early as January 20, 2025, if only to lend credibility to Trump’s threats. The plan is unrelated to the exaggerated promises of his first term regarding the border wall he was unable to complete along the Rio Grande – the work had been done by George W. Bush and Barrack Obama – or the tariffs imposed on steel and Chinese products. If implemented, the program will likely raise prices, disrupt the economy and exacerbate labor shortages. It’s a highway to inflation, which the US has just finally gotten rid of.
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