'TURMOIL': Trump pulls plug on Canada trade talks as 'frustration' mounts

Key Concepts

• Government Shutdown: A situation where non-essential government functions cease due to a failure of Congress to pass appropriations bills.
• Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• Federal Reserve (The Fed): The central banking system of the United States.
• Tariffs: Taxes imposed on imported goods and services.
• Onshoring: The practice of bringing manufacturing or other business operations back to the home country.
• Gross Domestic Product (GDP): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
• Non-defense Capital Goods: Goods used in the production of other goods and services, excluding those related to military spending.

Government Shutdown and Political Dynamics

Kevin Hassett, an economic advisor, discusses the ongoing government shutdown, which is in its fourth week. He explains that his earlier prediction of the shutdown ending that week was based on the assumption that moderate Democrats would negotiate once the "No Kings" rally concluded. However, he believes this was not the case, and Democrats are prolonging the shutdown to exert pressure. Hassett expresses regret over this situation.

Consumer Price Report and Inflation Outlook

Hassett comments on the recently released Consumer Price Report, describing it as a "really good report." He notes that inflation decreased slightly from August and was below expectations. He highlights that certain factors, such as a significant refinery shutdown that temporarily increased gas prices, artificially inflated the top-line number. He anticipates that gas prices will decrease in October, leading to further deceleration of inflation. This expected slowdown in inflation, Hassett argues, will reduce pressure on the Federal Reserve to maintain its current monetary policy path.

Trade Talks with Canada and Presidential Frustration

The discussion shifts to President Trump's announcement to call off all trade talks with Canada. The catalyst for this decision was an alleged fake advertisement depicting Ronald Reagan speaking negatively about tariffs. Hassett suggests that while the President has his reasons, his primary motivation is likely frustration with the slow progress of trade negotiations with Canada. He views the cessation of talks as a "timeout" and speculates that negotiations will likely resume at some point before the end of Trump's term. Hassett attributes the current pause to frustration with the Canadians' "behavior," "demeanor," and "positions."

State of the U.S. Economy and Market Performance

Stuart raises the point that despite the tariff turmoil and the government shutdown, the economy and the stock market do not appear to be in poor shape. Hassett elaborates on the current economic conditions, citing strong growth figures. He mentions that in the second quarter, GDP growth was close to 4%, and the Atlanta Fed's GDP Now forecast also indicates nearly 4% growth.

Hassett draws on private indicators and conversations with CEOs, who report that the economy is "rip roaring." He posits that the uncertainty surrounding tariffs is paradoxically driving a surge in investment as companies are rushing to "onshore" production back to the U.S. He points to the GDP accounts, specifically non-defense capital goods and shipments, which show booming investment and orders. This onshoring trend is also contributing to wage increases.

Furthermore, Hassett notes that retail sales are up approximately 7% year-over-year, indicating that consumers have disposable income and are spending it. Industrial production has reached an all-time high, suggesting overall economic expansion.

Economic Performance and Political Motivation

Hassett concludes by stating that the economy is performing exceptionally well, so much so that he believes Democrats are attempting to "slow down President Trump" because of his "so much success." He suggests that the opposition is "looking for failure." He finds it noteworthy that on a Friday morning, with the stock market rising across the board, the President's top economic advisor is reporting such positive economic indicators.

Conclusion

The conversation highlights a disconnect between political actions, such as the government shutdown and trade disputes, and the underlying strength of the U.S. economy. Kevin Hassett presents a positive outlook on inflation and economic growth, attributing the latter to increased domestic investment driven by onshoring. He suggests that the current economic success is a source of frustration for the opposition, who are actively seeking to undermine the administration.