Conrad Black: All Indications Are That the US Will Dodge a Recession

A trader works on the floor of the New York Stock Exchange in a file photo. AP Photo/Richard Drew

Commentary

Because President Trump has embarked on such an ambitious economic plan with a number of somewhat radical fronts being pursued simultaneously, it has raised general economic uncertainty and skepticism from orthodox economic commentators and investors.

To comment believably on the prospects of a recession in the United States, on the fortunes of the Department of Government Efficiency (DOGE), and on the gold price, these elements have to be examined separately and then addressed collectively. The president is trying to reduce the deficit while extending tax cuts and adding new tax cuts, and while increasing some categories of defence spending, particularly to assure adequate anti-missile defence systems for the Nimitz class aircraft carriers and bring the United States at least up to equality with the Russians and the Chinese in hypersonic missiles.

The comprehensive plan by which Trump intends to achieve all these aims simultaneously is emerging and has in general been inadequately appreciated by economic commentators, apart from his own economically literate partisans and collaborators, led by Treasury Secretary Scott Bessent. He believes that substantial reductions in government expenditure can be achieved by DOGE, and the initial evidence is that this is almost certainly true, though $1 trillion in annual savings may prove somewhat ambitious.

The venerable doctrine of Art Laffer and the Laffer Curve, that reducing corporate and personal income taxes so increases economic activity in the private sector—where the multiplier effect is greater than in the public sector—that ultimately revenues rise as a result, was substantially sustained by the Kennedy–Johnson tax cuts of 1964 and 1965 and the Reagan tax cuts of 1981. This performance was probably replicated by the Trump tax cuts of 2017, but the intervention of the COVID pandemic made it impossible to calculate with adequate precision whether this was the case.

The next element of the president’s plan to raise revenues and shrink the deficit is much more of a foray into the unknown. He is correct in his belief that throughout the Cold War and continuing after it, the United States tolerated a great deal of tariff inequality to assist in assuring prosperity in Western Europe and a number of countries on other continents as a method of linking their national interests directly to the United States and strengthening their resistance to the threats or blandishments of the Soviet bloc.

This did not prevent a good deal of neutralist posturing from alliance wafflers like Canada’s Pierre Trudeau and Germany’s Willy Brandt. However, the economy of the United States is such a mighty power that it was able to afford these surreptitious bribes for the loyalty of some of its so-called allies and neutrals and safely carry the cost of them on the strength of America’s domestic economy and its attractiveness to foreign investors to recycle back into the United States some of the money that the trade gap generated.

It is a strategically correct analysis by President Trump and his advisers that the United States need not any longer indulge the world in this trade disadvantage. There could probably have been better and less jarring ways for signalling this change of policy—particularly with respect to Canada, which is a fair-trading country and does not deserve some of the gratuitous verbal reflections that Trump has directed at it. But we must be getting close to the point where tariff matters are, as they must be, discussed privately between trade specialists. It is an extraordinarily complicated subject and is a singularly inappropriate matter to be bandied about in public with the declared drastic imposition of new tariffs and their deferral alternating every few days.

The president has successfully given full notice of his intentions, and the sooner these matters move to an appropriate forum for resolution without the negotiators having an artificial time gun at their heads, the better. It is a reasonable supposition that a systematic reduction of the tariff imbalances between the United States and other advanced countries will generate somewhat more tariff revenue for the United States, as under the Republican presidents from Benjamin Harrison to Calvin Coolidge (1889–1929). And it is also likely that this revision of tariffs, coupled with Trump’s tax reductions and specific incentivization of new investment in the United States from both foreign and domestic sources, will repatriate some manufacturing and contribute to significantly enhanced economic activity.

Economics is essentially a combination of psychology and Grade 3 arithmetic, and President Trump is doing very well at promoting a psychology of growth and optimism. And for the reasons just summarized, it is likely that there will be a substantial follow-through when the actual numbers attached to his tax-and-trade changes begin to be visible.

For all these reasons, I agree that his prediction that a recession will be avoided is probably accurate. However, his qualifier that there will be some perturbation for a time over tariffs is undoubtedly also true, and it would be reassuring if he now stopped deliberately inflaming the sensitivities of the financial world with unnecessarily belligerent talk of shutting down the industries of other countries with tariffs. Particularly uncalled for are nonsensical aspersions on the right and ability of Canada, one of the world’s more successful countries, to continue as an independent state.

Most of those who predict a recession are adherents to what is close to a zero-sum approach to economics, and this has often been proved, especially in the United States, to be an unnecessarily imaginative appreciation of economic facts. Skeptics tend to discount the amount by which government expenditures can be reduced. It is not remotely a simple matter of “waste and fraud,” but of the application of normal private-sector efficiencies to public-sector activity.

Nor can anyone foresee exactly whether tariffs really will be a significant additional revenue source for the federal government, but that prospect should not be discounted. The extent to which new investment in the United States will increase in secondary industry being originated or repatriated is wildly speculative, but the least that can be said is that it is worth a try, and there is very little to lose.

For all of these reasons, I do not believe that there will be a recession in the United States this year, and I think Trump’s economic plan will be substantially successful. He produced full employment with minimal inflation while rebuilding the defence apparatus in his first term, and that is a partial precedent.

The price of gold responds almost exclusively to the state of political nervosity. Because Trump is fiercely opposed by much of the political and economic as well as academic and media establishment of the United States and is completely misunderstood by 90 percent of foreigners, the decisive victory that he won in November and his emphatic statements of determination to carry out his program with maximum speed have agitated the gold price upwards. As matters gradually stabilize, it should settle somewhat.

The likely end of the Ukraine war and the de-escalation of Middle Eastern tensions, even if the United States and/or Israel have to eliminate the Iranian nuclear military capacity, should also contribute to an improved climate of confidence in the world. Qualified optimism is justified.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.