Uncertainty
/One of the biggest drags on GDP and consumer confidence is due to the uncertainty created when the Trump Administration kicked off the trade war with China.
When uncertainty rears its ugly head, it is not uncommon for individuals, our government, and corporations to stop spending until they see a better—clearer—path ahead. So, what happened to make us feel so uncertain?
To help answer this question, let’s look back at the stock market performance over the last three years.
In 2017, soon after President Trump was inaugurated, he reduced government regulations and announced his tax reform plan. This resulted in an influx of corporate spending on capital improvements and employee wages. The stock market loved the idea, and the market soared like a rocket, straight up, throughout 2017.
In 2018, the stock market continued its upward trend, albeit at a slower pace, until the trade wars got underway. That’s when the rocket lost its booster. In October, corporations and investors realized the trade wars (which began in June 2018) were not going away soon.
By the end of 2018, the stock market was stripped of all the gains made from the beginning of 2017. In other words, the trade wars took away all the market gains that the corporate tax cuts and reduced regulations gave us. The uncertainty of the trade wars caused spending to falter and Gross Domestic Product, our national output, to drop. Corporations decided to stay in a holding pattern until they could see a clearer sign of how the trade wars would affect them.
Well the good news is that, recently, the U.S.-China trade talks have turned a corner, and this has helped the stock market hit record highs. The trade wars aren’t over, but hopefully we’ll have a trade agreement soon. Then we can go back to worrying about the weather.
