Trump’s Aim to Restart Economy Risks Worse Damage

(Bloomberg) -- President Donald Trump’s desire to get the U.S. economy up and running soon runs the risk of backfiring and making things even worse.

With an increasing number of state and local governments ordering business shutdowns, a call by the president for a return to normal could lead to confusion and undermine the efforts of those municipalities to contain the coronavirus contagion.

“There is the potential, if the president pushes the view we need to get the economy going, to really just sow chaos throughout the country,” said Maury Obstfeld, former International Monetary Fund chief economist.

What’s more, if an early resumption of activity leads to a bigger spike in virus cases -- as some health experts fear -- that would just end up making the recession deeper and longer.

“If it does lead to a resurgence, the economy would be much worse off than it already is, as it would only lead to second shutdown and a longer period of economic weakness,” said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co., who sees gross domestic product contracting at a 14% annualized rate in the second quarter.

There’s a lot at stake politically as well. If Trump’s call for reopening the shuttered U.S. economy boomerangs and results in more deaths and more economic destruction, his chances of winning re-election are certain to fade.

Tough Decisions

“He faces some very tough decisions,” said Stephen Moore, an ally of Trump’s and advocate of an early return to work by America. “They may decide the fate of his presidency. He’s got a lot riding on getting this right.”

Trump said on Tuesday that he wants to wind down “social distancing” and reopen the U.S. economy after his 15-day strategy to slow the spread of the virus ends next week. “I would love to have it opened up and just raring to go by Easter,” he told a Fox News “virtual town hall.”

White House senior economic adviser Larry Kudlow acknowledged that the administration doesn’t have the power to order a return to work. “We don’t exercise any monolithic authority but guidance is very important,” he told reporters on Tuesday.

“Public health also requires a good economy,” Kudlow said. “It’s not ‘either-or.’ The two have to work together.”

Maryland Governor Larry Hogan, who this week ordered all non-essential businesses in the state closed, said he was taking his cue from scientists and experts. “We don’t think we’re going to be in any way ready to be out of this in five or six days,” when the president’s initial 15-day slow-the-spread strategy is over, Hogan told CNN television.

“Even if the president wants to reopen the economy, it is unclear he really could given resistance from state and local officials and that many people would simply ignore him and stay home,” said Mark Zandi, chief economist for Moody’s Analytics.

‘Undermine’ Economy

“The reality is that what would happen if the president tries to reopen the economy is complete confusion, which will exacerbate the health crisis and undermine the economy even further,” he added.

Zandi, who noted his firm has advised him to stay away from work until May 1, doubted that many companies would rush to resume business -- no matter what the president says.

In fact, foodmaker Kellogg Co. said when employees return depends on what what local governments say.

“You see certain messages that don’t always jive between federal and local governments but local governments make the rules we’re required to follow,” chief executive officer Steve Cahillane said in an interview.

While many jobs at Kellogg are in food manufacturing and considered essential -- and therefore not subject to lockdowns -- Cahillane said that corporate employees will work remotely as long as instructed by state governments.

“Obviously each state is going to control when they’re going to open up,” New Balance Athletic Shoe Inc. Chief Executive Officer Joe Preston said in an interview on Tuesday. “We’re going to make our own call when we feel it’s safe for our associates to come back.”

The company’s U.S. staff are working from home and its factories have been closed for two weeks.

Wells Fargo Securities senior economist Mark Vitner also sees a slow return to work. “Economic activity will ramp up fairly slowly as supply chains will take some time to normalize,” he said.

Starting Discussion

Vitner gives Trump the benefit of the doubt and says Trump is mainly trying to get the discussion going: “The president is right in starting the discussion about getting back to work. Establishing mileposts, benchmarks and criteria for ending the shutdowns and returning to work will remove some of the uncertainty present in the economy today,” he said.

That’s exactly the point, according to Moore, whom the president once considered nominating to the board of the Federal Reserve and is now an economist with FreedomWorks. “I like the idea of a date certain,” he said. “One of the reasons the stock market has crashed is that people don’t know how long this is going to last.”

Obstfeld, a professor at the University of California, Berkeley, questions the wisdom of such a strategy. “You can attempt to restart the economy, but there will be a huge fear people will have about infection,” he said. “You would not even get a snapback of economic activity as the president seems to think.”

“Moreover, there would be a resurgence of the disease,” he said. In that case, “the pressure to go to another lockdown like the one we are in in a number of states now would just be irresistible. At that point, the damage to the economy would be far worse.”

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