Getting scared yet?

All of a sudden the business media are in full-on recession watch -- and not without reason.  Just from CNN we learn that growth in China's industrial production has slipped to its slowest pace in seventeen years (though most countries would be very happy with 4.8 percent year-on-year growth); that five major economies, including the UK and Germany, are flirting with recession; and that the US yield curve (2-year vs. 10-year Treasuries) has inverted for the first time since 2007, a development that is generally a harbinger of bad times to come. In response to all this the DJIA plunged 400 points at the open on Wednesday and just kept right on falling.

It's not altogether surprising that a recession may be just around the corner. The global economy has been in expansion mode for the better part of a decade, an usually long time by historical standards.  Central banks stopped providing additional stimulus some time ago, and in some cases have begun to tighten very modestly.  The boost provided by the Trump tax cuts has faded.  On top of all this, the impact of the tariff wars unleashed by Trump is clearly starting to be felt.  Global trade is slowing, with both the US and China reporting falls in exports.

It's interesting, then, that Trump appears for now to have backed away from his latest tariff threat against China. Levies on a fresh array of Chinese products, including many consumer electronics items, were set to take effect in September, but many of these have now been delayed until December 15.  Even more interesting is the reason Trump offered for the decision: he's doing it for the Christmas season, "just in case" the tariffs might have an effect on US consumers.

Trump has always claimed, quite preposterously, that his previous tariffs have been paid by China, rather than US buyers of Chinese products.  White House insiders have gone so far as to say that this is a quasi-religious belief on Trump's part, one from which he can never be dissuaded.  In that light, the decision to suspend the latest tariffs "just in case" represents something of an epiphany, though this being Trump, it's unlikely to mark the start of a more consistent trend toward accurate economic thinking.

What we are clearly seeing in recent Trump pronouncements, including this tariff decision and his repeated attacks on the Federal Reserve, is a growing recognition that his re-election chances in 2020 depend more than anything on the strength of the economy. The thinly-veiled racism and anti-immigrant rants may shore up his base, but that will never be enough to get him back into the Oval Office. Bank of America says it now sees a 30 percent chance of a US recession by election day, and many commentators think BofA is altogether too optimistic.  If, as Bill Clinton famously said, "it's the economy, stupid", stupid's prospects have just taken a significant turn for the worst.