The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Art of the “Hollow” Deal

10/02/2019

Yesterday was a bad day in the stock market, with the Dow falling over 340 points.  It was also a bad day for the President’s re-election probability.  The latest ISM Manufacturing report was released, showing a continuing drop in manufacturing.  In fact, it is firmly in contraction territory at 47.8, which was worse than economists expected.  (Anything under 50 indicates contraction.)  This level is the worst since the global financial crisis.

But you say “who cares” because manufacturing is only 12% of GDP and only 8.5% of employment?  This is bad for the President as manufacturing was the sector that voted for him most strongly in 2016.  His own base is being hurt the most by the continuing trade war.  For the benefit of his base, I expect this will pressure the President to accept less than the hoped-for trade deal with China, which will cause an immediate bull run in the market.

But, it won’t take long for the Wall Street analysts to figure out the deal is much less than promised, which the market will happily ignore.  The market was fine before the trade war and any improvement in trade relations will keep Wall Street happy.  More importantly, it will make his base happy.  Accepting a “hollow” trade compromise with China will please both his base and Wall Street.

Of course, Democrats will not ignore the unfilled promises of the trade deal.

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