We are in Trump pivot territory.
In my career I have never seen the likes of what is occurring in the United States, and the world, right now.
The crises of my time — the Asian crisis, tech bust, global financial crisis and even the COVID-19 pandemic — were errors in which some degree of latitude was reasonable when judging actions. But that also meant as pennies began to drop, the policy path and the timing could be understood. Conventional economics has a certain logic to it.
But current events are an error of economic reasoning. Tariffs at the scale the US has imposed, and other countries retaliated with, that remain, are enormously damaging to global activity. There is no fine judgement. As such, there is only one outcome which is not enormously damaging: US President Donald Trump pivots.
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The market reaction we are seeing puts us in pivot territory. The administration’s stated belied is that Wall St and Main St are separate. Certainly, they can trace somewhat different paths, but they do have some connection, and in extremis they join up and become one. They are now joined.
The absence of conventional economic reasoning makes it much more difficult than usual to pick the timing of any pivot. How much financial economy and real-economy damage will it take for the administration to choose a different path?
Forecasts
ANZ Research anticipated tariffs in early April, but not of this scale. Its forecasts need to respond to that error.
The US is a quarter of global demand. It’s taken the average import tariff rate back a century, and other countries have added tariffs of their own.
In the near term these tariffs, coupled with the market response, will result in a discrete shift in the data. The emerging trends in some of US survey data over the last month – with weaker activity and stronger inflation – will be starkly accentuated.
ANZ Research had already lowered our US growth forecasts and anticipated a weaker global economy, but these tariffs will be a broader growth challenge – particularly for the US and export sensitive economies in Asia.
They will result in lower interest rates of all durations, and ANZ Research has already revised its Reserve Bank of Australia forecasts to anticipate more cuts. The tariffs will also be a challenge for the US dollar against European currencies that are perceived to be somewhat safer than Aus, NZ or Asia.
As the stickability of these tariffs becomes clearer, ANZ Research’s forecasts will need to reflect that. At that point we will also need to determine: when Trump does pivot, what will he pivot to? This is clearly an administration of activity.
Richard Yetsenga is Group Chief Economist and Head of Research at ANZ
