After a rousing stock market at the end of 2016, one pundit has has a warning for investors: don’t get too comfortable.
Former U.S. Treasury Secretary Lawrence Summers is cautioning that investors are far too confident about President-elect Donald Trump’s administration.
“It’s a moment of extraordinary uncertainty that markets seem not to appreciate,” Summers, who was Treasury chief during Bill Clinton’s presidency, said in an interview with Bloomberg News. His remarks come at a time when Democrats are scrambling for ways to counter an emboldened GOP, which is set to control both Congress and the White House -- and seeks to overturn long-established policies, such as free trade.
“There are prospects that things could work out well,” he said, “but there are enormous risks to the global economy, from possible U.S. protectionist measures, from experimentation in a world where basic pillars of American foreign policies are up for grabs.”
Summers’ sound of alarm about unacknowledged risks comes after the Dow Jones industrials rose 13.4 percent in 2016 and the S&P 500 rose a respectable 10 percent last year. While both novice and experienced investors understand that the stock market doesn’t always rise and fall in lockstep with the economy, Summers warned that the markets aren’t fully recognizing the risks carried by Mr. Trump’s proposed measures, such as his push for tariffs on foreign imports.
Other economists have raised concerns about Mr. Trump’s push for tariffs on foreign imports, with Citibank chief economist Willem Buiter writing to clients that protectionist trade policies could “easily trigger a global recession.”
Summers took aim Mr. Trump’s protectionist policies, which were outlined in a policy paper written by economist Peter Navarro, who has been picked by to lead the newly created White House National Trade Council, and Wilbur Ross, who has been named to lead the Commerce Department. The policy paper suggests that the U.S. can grow by cutting back on imports.
“The Navarro-Ross paper is well beyond voodoo economics,” Summers said. “The arguments are so far out of the mainstream that they are the economic equivalent of creationism.”
As a result of Mr. Trump’s victory and his policies, as well as the uncertainty on which proposals he’ll pursue, America is now a leading source of global risk, Eurasia Group economist Ian Bremmer said on Bloomberg News.
“America is driving global political risk and uncertainty, and that’s not reflected in the markets right now,” Bremmer said.