Yes, Trump’s policies will cause a recession, but his tariffs are not the reason.

A recession is coming!

Is it?

If so, when? And we should ask why.

A headline in Fortune said, “A Majority of Economists Think the Next Recession Will Come by the 2020 Election”.

Business Insider’s headline was “More than 70 percent of economists think a US recession will strike by the end of 2021”.

There is a huge political difference between the two.

Donald Trump‘s bid for re-election is dependent on his base plus a good economy. In our most simplistic mental model, if a recession comes before November, 2020, he loses.

If it waits at least until December, 2020, it is more likely to be a Merry Christmas and a Happy New Year for the Donald and all the assorted other Trumps.

If there isn’t a recession before the election and a Democrat wins anyway, but there’s a recession shortly thereafter, then Trump and the Republicans will blame the recession on Democratic policies or, if they had not yet been implemented, on the mere psychic effect that they might occur. That will make change more difficult.

Obviously, if there’s a recession before the election, and Donald loses, then it will be easier for the new administration to pursue a new agenda.

Before you start calculating the odds and placing your bets based on the two headlines, please note that the Business Insider headline says “by the end of 2021”. The study, which was also picked up by the AP, the Economic Times, Money.com, and many others, actually has about half of the economists saying it will come in 2020 and half predicting 2021.

Recession predictors are mostly pointing to one indicator, the bond yield curve.

This refers to US government bonds. They are issued with a face value – a preset amount of interest they’ll pay. Then, they are placed on “the market.” Demand moves the price up or down. If there’s little demand, the treasury can issue bonds that pay more, making them more attractive.

The bonds vary in the length of time to maturity from three months to 30 years. In normal circumstances, the presumption is that the longer the term the higher the risk. After all, a whole lot more is going to happen 30 years than in three months. Even in 10 years over two years. Therefore, the longer the term, the higher “the yield” – the interest rate – should be.

In early August, however, the price for three-month US Treasury bill rate became 32 basis points higher than the sinking 10-year yield and reached the widest difference since April 2007.

According to CNBC’s Thomas Franck, such reversals “have preceded every recession over the past 50 years.” That makes it an astonishingly powerful indicator that a recession is coming.

There’s a real market at work here. If investors demand a greater return for short term (in the three months to two years range) than for long term (10 years or more), it means that they believe that the immediate risk is worse than the long term risk. It’s like people walking around Westeros (that made-up kingdom in Game of Thrones) muttering “Winter is coming, winter is coming.” They mean the bad one is coming after this summer. Or maybe next. At the most.

It is important, however, to understand what this bond rate thing really is and is not.

First of all, it is just a measure.

And what it measures is “feelings”.

The oddity is that almost all the economic conditions that economists (and the financial media, and the pundits) consider significant are good. Growth is reasonable. Unemployment is low. Inflation is low. Energy prices are low and likely to remain so. What is it, then, that investors are feeling?

And why are they feeling what they are feeling?

The one concrete item is tariffs and trade wars.

Josh Marshall, editor of Talking Points Memo, says that if a recession hits “it’ll be impossible not to point to a ruinous, needless trade war as a key cause.” Part of the objection to tariffs is that they are taxes and it is axiomatic in the theology of economics that taxes take money from the real economy and tax increases slow the economy.

That’s utter nonsense, of course, and demonstrably so.

President George HW Bush raised taxes (because of deficits), then his recession reversed course. President Bill Clinton raised them again, and got the greatest job growth and arguably the best economy since the end of World War II until he put through a capital gains tax cut. As a result, the dot.com boom immediately turned into the dot.com bubble, which popped in 2000 and became a recession.

His successor, President George W Bush, cut taxes three times. He got a “jobless recovery”, bubbles in housing, banking, and the stock market, a monster crash, followed by the Great Recession.

The truth is that virtually every nation that grew from an agricultural economy to a successful modern economy used protectionism to do so. Including the US, Germany, Japan, the UK, France, and more. There’s plenty of history there to instruct on how to do it successfully.

The issues for mature economies are muddier. What’s becoming clear in recent years is that for mature economies to blindly embrace “free trade” is to be taken over by financialisation. The process is quite advanced in the UK, where the financial elites thrive in “the city”, while the rest of the nation slides back toward the 19th century. It’s proceeding, but less advanced in the US (a younger, much richer base), but the problems are becoming visible.

The failure of economics to address the issues that can be met by tariffs or other forms of protectionism in developing nations has had grave political effects – Donald Trump, Boris Johnson, Brexit, the rise of backward nationalists, and the tendency to blame immigrants for it all.

Meanwhile, there is a real reason that a recession is coming: Trump’s tax cuts. Though it’s too soon for official statistics, it is pretty clear that Trump’s tax cuts will increase income and wealth inequality. Therefore, history predicts that they will have the same disastrous results as previous tax cuts.

An oddity is that the one thing that actually bothers economists and prognosticators, the tariffs, have mitigated what is coming. With Trump’s election, the promise of tax cuts, and the actual tax cuts, the stock market as measured by the Dow Jones average, went up over 40 percent. It stopped, abruptly, in January 2018, when he launched the tariffs, and has stayed level ever since. Without the tariffs, that bubble would have likely doubled, making the burst that much bigger.

Yes. A recession appears almost inevitable.

No. We can’t predict the timing.

But the timing is important.

If it comes before the election, it almost certainly elects a Democrat, just as the crash of 2008 did, even though the candidate was African American with an Arabic name.

If it waits, Trump might be reelected. If he is, and then it comes, it will likely lead to real worldwide political turmoil. The acceptable economic weapons for saving the economy – ultra-low interest rates and deficits – are already in use and there is not much further to go.

If it waits, and a Democrat is elected, and the recession hits immediately, they get blamed, Republicans hoot and howl, and tax hikes, universal healthcare, and government green spending are more difficult to put through. If they manage to put through such things before the recession hits, it will likely be significantly smaller with a quicker recovery.

In the end, if democracy can prevent economic disasters or save us when they come, the world believes in democracy. If it can’t, the world turns towards fascism or other forms of strongman rule, as it did after 1929 and after 2008. That’s the ultimate political effect of economics.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.