Trump’s unrelenting trade war isn’t great for the economy, but it certainly won’t push us into a recession

Something else will end this US growth phase. But right now, in the Washington sunshine, that downturn feels a fair way off

The Labor Day national holiday this Monday, traditionally marks the end of the summer holidays. It’s back to business, back to school, back to politics. But this year the raucous political clamour of Washington never eased. In fact it ramped up, showing through even in the memorial events celebrating the life of John McCain.

The behaviour of Donald Trump was, to most of us, disgraceful. But the president knows his market, and presumably thinks that for his supporters partisanship tops everything else.

And there is the strange contrast that dominates just about everything in America at the moment: the seemingly successful economy, and the dysfunctional politics at both a national and international level. On nearly all conventional measures, the US is on an economic roll. You see this in company profits, running at record levels. You see it in share prices, which are at or close to all-time “highs”. You see this in the macro-economic figures such as employment and growth, but tellingly you also see it in the detail of daily lives.

The best example I have found of this is beef sales. There are always a host of Labor Day shopping deals, everything from shirts at Brooks Brothers to Canadian pork tenderloin at Whole Foods. But this year apparently one of the key indicators that Americans are feeling good about their finances is the switch from cheaper meats, notably chicken, to beef for their barbecues. When you are skint you eat chicken, and when you’re flush you eat steak.

Consumer confidence is at an 18-year high, according to an estimate by the Conference Board last week. Demand will be further boosted by the tax cuts that come in during the next few months. Interest rates will rise, but we have been assured by the new chair of the Federal Reserve Board, Jerome Powell, that these will be gradual, and of course if the economy falters, then the Fed will ease off.

So what can possibly go wrong? Well, a whole load of things. Top of the present set of concerns is a trade war. The talks on a redesigned Nafta last week seemed to be going fine, with Mexico on board for a modest revamp of the present arrangements, and with Canada on final approach for landing a similar adjustment of the current deal. All three could claim they had achieved their objectives, while eliminating some of the irksome details that have enabled Donald Trump to present Nafta as a disaster.

Then on Friday it all fell to bits. I’m not quite sure why – supposedly something to do with Canada protecting its dairy industry – but that doesn’t really ring right. It may simply have been that Donald Trump wanted the theatre of a breakdown to counter his being quoted when he thought he was off the record. What is clear is that it is not a reason for putting thousands of jobs at risk. It may be that when talks resume this week something will be cobbled together. My guess is that eventually it will.

In any case, the US-Canada trade relationship is not the great global issue that could derail the world economy. It matters a lot for Canada, for three-quarters of its exports go to the US, so in that sense it is in the weaker position. But in global terms Nafta is only Nafta. The somewhat bigger game is trade with Europe, and we know the EU is next in the firing line. But the biggest game of all is the trade relationship with China.

The dynamics are different. Neither Europe nor China have a trade deal with the US, so the issue is not a treaty that has to be renegotiated. But Donald Trump’s perception is that both relationships are unfair: too many fancy European cars in the US, too many cheap Chinese imports too.

This resentment is not new, for protectionism is a thread that runs through American history and will continue to do so. The question really is whether this bout will become truly destructive. I think the answer is no. Donald Trump has threatened to pull out of the World Trade Organisation (WTO). That is not new and in any case he has got round WTO rules by citing national security. He has threatened to put a 25 per cent tariff on European cars but wait and see, for this looks like a bargaining chip. Even if there is a full-scale trade war with China, that will make only a small dent on world growth. China is much less dependent on exports to the US than it was a decade ago.

I don’t want to be Panglossian about this. There will be a period of disruption, and trade in individual commodities and other goods will be damaged. But I don’t think that the US economy, or indeed the UK or European economies, are going to be tipped into a recession because of a trade war. Something else will end this US growth phase. Maybe it will simply be lack of capacity, resulting in higher inflation, a squeeze on credit and so on. But right now, in the Washington sunshine, that downturn feels a fair way off. That contrast between a solid economy and flaky politics continues for a while yet.

Focus on that solid economy. The thing – as a frequent visitor and admirer over many years – I find frustrating, is this notion that America somehow needs to be made great again. Senator McCain’s daughter Meghan McCain made the point directly at his funeral at the National Cathedral here in Washington on Saturday: “The America of John McCain has no need to be made great again because America was always great.”