In the midst of the tense US-China trade war, markets have been taking a hit. Indeed, the US economy has been showing multiple signs of a potential recession, including the dramatic inversion of the yield curve. Due to the ever increasing tariffs, investors have become less and less optimistic about volatile investments, causing global stocks to decline. In response, Trump has begun claiming that negotiations are on the way, and that the problem is about to be solved.
More specifically, the president has claimed that he has communicated directly with Chinese officials, stating that the Chinese seem eager for a deal. This public announcement calmed investors, thus reversing a huge decline in stocks. However, China revealed that these talks never actually happened, and it appeared that Trump had conflated comments from Chinese authorities with direct communication.
As a result of these inaccurate statements, market analysts have become ever more careful about optimistic rhetoric. They have become less likely to believe statements coming from less credible sources and require more evidence to support new announcements.
This can lead to a dangerous scenario. If positive news do materialize in the future, markets may still remain skeptical and thus fail to revert to their original states. If Trump wants to retain trust within the stock markets, he needs to report the truth and avoid falsifying claims for the short term economic effect. Otherwise, the resulting distrust may even ripple beyond the stock market––the general population is likely to question Trump’s authority and legitimacy as he fabricates good news just to give markets a quick boost. Although the immediate effects may be beneficial, in the long term, destroying the public’s trust in him will lead to more devastating and significant consequences.