Every day, the news stories keep telling us that a deal with China is farther away than ever. Yet the stock market has been going up since the stalemate was announced. (It was down trivially today after being up this week and last.)
What gives? A trade war with China keeps being described as an economic catastrophe. What do the wise guys on Wall Street know that orthodox economists don't know?
Herewith, four conjectures:
First, the tariffs and the blockage of some Chinese tech companies are just not that big a deal for the economy as a whole, and they have some offsetting benefits to U.S. industries such as steel and possibly to Silicon Valley and the future of U.S.-based supply chains in general.
Second, many Trump watchers suspect that sooner or later Trump will cut some kind of a deal with China, but closer to the election when he really needs it.
Third, there is more to the stock market than China. Thanks to the 2018 $1.6 trillion dollar tax cut, corporate profits are astronomical.
Finally, the low-inflation, low-interest rate, and low-unemployment environment is a sweet spot that economists expect to continue. How can very low unemployment rates coexist with low inflation? Because labor's bargaining power has been savaged, even in an economy where jobs are plentiful and idle workers are scarce.
Wages are up, but not very much.
In other words, the Trump economy is great for Wall Street, mostly lousy for Main Street. We kinda knew that.
