Merkel Ally Cites Market Crisis Risks If Trump Boom Falters

  • Doubts might arise if U.S. can ‘handle it’: Germany’s Hardt
  • Cites risk of Trump spending plans hitting wall in Congress

President Donald Trump’s administration risks triggering a market slump that would be hard to control if investors lose confidence in U.S. economic policies, according to a lawmaker who tracks trans-Atlantic relations for German Chancellor Angela Merkel’s government.

“The situation is much more volatile” than under the previous U.S. administration, Juergen Hardt, a member of Merkel’s Christian Democratic Union party, said at the Bloomberg Forum in Berlin. “This time, people might say: Can this government handle it?”’

U.S. markets have rallied since Trump won the election in November as investors speculate that infrastructure spending and giving preference to U.S.-made goods will boost growth. If the “Trump effect” falters, Hardt said, he’d expect investors to have less confidence that the U.S. would work with its partners to stem a market rout than in 2008, when finance chiefs took “immediate action” to reassure investors.

“That’s my great concern -- that a stock-exchange slump would set in that couldn’t easily be halted quickly” if “expectations placed on Trump’s economic policies aren’t met,” said Hardt, who met members of Congress and the U.S. administration in Washington in February.

Hardt’s comments echo concerns voiced by German executives and business lobbies that punitive duties or an artificial reduction of U.S. imports would harm trade and be detrimental to Americans and foreign suppliers alike.

“It may help to preserve one or the other business location short-term if Donald Trump were to force domestic and foreign companies to keep their production in the U.S. or build it from scratch,” Carl Martin Welcker, president of the VDMA plant and machinery makers’ association, said in emailed comments to Bloomberg. “In the medium and long term, however, such compulsory measures lead to investors turning away -- and thus to a loss of wealth.”

The Dow Jones Industrial Average has gained almost 14 percent since Trump won the presidency. With U.S. public debt edging toward $20 trillion, the president wants to slash personal and corporate income taxes, eliminate Obamacare levies, raise defense spending, build a border wall, renew infrastructure and shield Social Security and Medicare from cuts. That agenda requires support from fiscally conservative Congressional Republicans, who have resisted increased spending.

“I honestly don’t see where all the money for these programs is supposed to be coming from,” Hardt said at the event on Thursday.

— With assistance by Kevin Costelloe

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