Tag: economics
We Can See Trump's Economic Agenda Now -- And It Won't Work

We Can See Trump's Economic Agenda Now -- And It Won't Work

At this point, it’s clear to see that the Trump administration, along with their Congressional allies, who sit on their hands when told (tariffs) and raise them when told (the budget bill), are aggressively and successfully implementing a big, new economic agenda. As I’ll describe, it won’t work. It’s wrongheaded, ill-founded, and will hurt the people they said they want to help.

But before we get into that, I will give them this: they’ve been remarkably successful at moving policy through a clunky, incalcitrant political system, in part because they’ve legislated none of it so far (should it pass, the budget bill will be their first big piece of economic legislation; their crypto/stablecoin bill is stuck in the House, though this too is part of the plan, as I note below).

When I say “remarkably successful,” I mean the rest of us should learn from them. I’ve spent many years in gov’t, including in the Obama and Biden admins, and we self-imposed infinitely more barriers on what we wanted to do then the Trumpies (the same could be said for any admin since FDR, though he, of course, went the legislative route, one the Trumpies avoid). Basically, when a lawyer said “can’t do that,” or a political adviser said, “can’t go there because X won’t like it,” we listened.

Not these folks. They just do what Trump wants, and if the courts or some constituent group doesn’t like it, too bad. Their relentless energy to jam through their agenda, evil as it is, is a site to behold. I keep thinking, what if we did this with higher minimum wages, or abortion rights, or gun control, housing and child care, etc.?

I don’t want to overstate this case. Of course, exec orders can be and are flipped on day one by a new admin. And, as a naturally cautious, risk-averse dude, I’m sympathetic to measure thrice, cut once, vs. the Trumpies, “don’t measure! Cut!” But Ds need to learn some boldness from these folks about implementing your agenda.

Okay, with that off my chest, let’s look at their economic agenda, which is now in plain sight.

—Reduce global trade in order to reduce the trade deficit and reindustrialize U.S. industry. This one will fail for many reasons. First, they mistakenly view any trade imbalance as evidence of someone ripping us off, which is no more valid than arguing your grocery ripped you off when you willingly shopped there. Second, it’s too late to unscramble the globalization omelet: almost half of our imports are inputs into our own domestic manufacturing, which is why trade wars hurt, not help, domestic production. Third, there will be no reindustrializing. Even countries with persistent trade surpluses have their manufacturing job shares in decline.

What will happen instead is higher prices for imports, some new revenue from the tariffs, some protected industries, like steel, doing better than they would have otherwise, though at the expense of other industries that buy tariff-induced, now-more-expensive outputs. Growth will, on net, be a bit slower for a time (assuming they eventually set the tariff rate and stick with it, a strong assumption), and inflation and interest rates higher for a time as well.

—Deport undocumented immigrants for the crime of being undocumented. I’ve had the misfortune of hearing Stephen Miller talk about the economics of this plan, which suggests he stuck with econ 101 for a few weeks and bailed too soon. His idea is that if we reduce the supply of labor by kicking out undocumented workers, employers will have to pay more to domestic workers.

This won’t work either. That is, as the figure shows (from Axios this AM), it will work in reducing net immigration, and, as I’ll discuss below, border control is a highly legit goal (of course, this goes way beyond that). But it will hurt the economy. For one, reducing labor supply is a negative for growth, one which will especially pinch in sectors like construction, health care, restaurants, meatpacking, hospitality services. For another, and this is a flaw in Miller and many others’ understanding of these dynamics, immigrants don’t just bring supply. They also bring demand.

With the push against immigration, "the economy will find itself slightly diminished in the long run and inflation will run a touch higher," economist Bernard Yaros writes in a report for Oxford Economics…

“The arrests cast a shadow over the local economy. Restaurant tables emptied. Kitchen workers stayed home. Fruit vendors disappeared from the streets. The number of shoppers at stores shrank, and those who still went didn't linger for long…"

"That means crops are not being picked and fruit and vegetables are rotting at peak harvest time," farmers and farmworkers told Reuters.

—Gut the safety net to very partially offset large tax cuts for the wealthy. This one is quite different from the first two because it explicitly and demonstrably hurts working class people (the above two do so as well, but as second-order effects; this one is first order). Here we have Trump in traditional R mode, passing a deficit-financed budget with which Reagan and the Bushes would be very familiar. But even they would be, like, “Wait up, Donnie. We always gave a few crumbs to the bottom end so we could say we we were helping everyone. We gave a little to the poor and a lot to the rich; we didn’t take from the bottom to give to the top.”

Like everything else here, it won’t work in terms of helping working class people because trickle-down never works. It will “work” in terms of enriching their traditional donor class. It it is also likely to eventually raise interest rates, potentially making debt service a much heavier lift than we’ve seen before (as we argue in a new paper, out soon).

—Block the production of renewable energy. This couldn’t be clearer in the big, stupid bill, and it’s so ridiculous that even traditional Rs like the Chamber of Commerce and energy companies that recognize renewable energy production is part of their and our futures don’t get it. It seems to be driven wholly by Trump’s nostalgia for coal and distaste for wind turbines blocking his view.

It won’t work in the sense that it will cost jobs, make energy more expensive, and slow us down in the global AI race.

There are other cats and dogs I won’t go into. A big one is compromising Federal Reserve independence. Kings don’t like independent Fed chairs, but this one will also backfire bigtime. History is clear that loss of central-bank independence is inflationary. (Jason Furman and I had a good talk yesterday about this and much of the rest of the above, here.) They’re also trying to normalize crypto and integrate it into the larger financial system. To say “that won’t work” is an understatement. Depending how far this highly volatile asset with zero use cases integrates into the system, it’s a future financial crisis in the making.

Also, as noted, controlling the border is, by definition, integral to having a country. And unfair trading partners exist. IOW, there are germs of truth in those parts of the agenda, but, and this is an aspect of their approach we should decidedly not emulate, they always go to the sledgehammer when the scalpel is what’s needed.

To say, as I do here, that an agenda that is in place won’t work is to make a empirical bet. I’m predicting worse growth, price, job, and interest rate outcomes than would otherwise occur. And this being economics, with millions of other variables endlessly zipping around, I could be wrong. If so—and it will take some time to know—I’ll be the first to say so. But I think and fear that I’m right.

Jared Bernstein is a former chair of the White House Council of Economic Advisers under President Joe Biden. He is a senior fellow at the Council on Budget and Policy Priorities. Please consider subscribing to his column for free at Jared's Substack.

Reprinted with permission from Substack.

Trump Tariffs

How Trump Will Make The Tariff Shock Worse

In the fall of 1979, as I was just beginning my teaching career at MIT, I went to an economics conference in Vermont. I made the trip in a state of high anxiety — not because I was worried about my presentation, but because I was driving. And it wasn’t at all clear whether I’d be able to find gas for the return trip.

For those were the days of fuel shortages and gas lines, with drivers sometimes waiting hours for the opportunity to refill their tanks.

What happened in 1979 was that the United States faced an inflationary shock: soaring oil prices in the aftermath of the Iranian revolution. That was a bad thing for American consumers. But the experience was made much worse by botched policy. Rather than simply accept higher prices at the pump, the U.S. government imposed a gasoline price ceiling. And as often happens when the government tries to control prices, the result was shortages and a lot of disruption.

Obligatory disclaimer: Price controls, or more generally government pressure on companies to keep prices down, aren’t always a bad thing. Back in 1962, when John F. Kennedy pressured the steel industry to roll back a coordinated price increase, his actions made sense: Steel companies weren’t responding to higher costs, they were collaborating to take advantage of monopoly power.

But trying to simply order businesses not to pass on a genuine cost shock is asking for trouble. Which brings us, as most things seem to these days, to Donald Trump.

Right now U.S. business is facing a large cost shock created by Trump himself. Even after the partial climbdown last weekend, the average U.S. tariff rate stands at 17.8 percent, up 15 points from its pre-Trump level. Since imports of goods are more than 11 percent of GDP, that’s a big shock to consumer prices. And no, foreigners won’t pay the tariffs.

Now, an inflationary hit this size is a bad thing. Still, it could be a one-time event, something the economy absorbs before moving on. But for that to happen we’d need an intelligent, responsible policy response.

Hehehe.

What we’re actually going to get are the three Ds: denial, dirigisme and deception.

Denial: Trump has, of course, repeatedly insisted that there is no inflation in America, pronouncing reports of rising prices “fake news.” What’s new is that Scott Bessent, the Treasury secretary — who was, you may remember, supposed to be the adult in the room — has gotten into the act. On Meet the Press Sunday, Bessent dismissed inflation concerns by asserting that

Gasoline prices have collapsed under President Trump … that is a direct tax cut for consumers.

Now, in general presidents deserve neither credit nor blame for fluctuations in gasoline prices, which mainly reflect the global price of crude oil. But that aside, what the heck is Bessent talking about? Here’s what has been happening to gas prices:

Source: Gasbuddy.com

I do not think that word “collapsed” means what he thinks it means.

So is Bessent just lying? Or has he joined Trump in his epistemic bubble, where reality is what he wants it to be? I’m not sure which is worse.

Dirigisme: Originally a term from postwar France, it refers to an economy that remains mostly in private hands but in which the government sometimes tries to tell companies what to do. It remains unclear to this day how well dirigisme actually worked or even how much it was real as opposed to officials getting in front of an economic parade that was happening anyway and pretending that they were leading it. What’s true is that dirigisme may not do too much harm when practiced by sophisticated, well-informed technocrats.

What won’t be harmless is when dirigisme is practiced by a president who takes time off from declaring that Taylor Swift is “no longer hot” to issue demands like this: Now, Walmart, while profitable, can’t actually afford to EAT THE TARIFFS. (Weren’t the Chinese supposed to do that?) So what will Walmart and other companies do if Trump’s tariffs are way up but they’re afraid to risk Trump’s ire by increasing prices?

Hello, empty shelves.

Finally, deception: What will happen when the tariffs start showing up in official measures of inflation, which will happen soon? Erica Groshen, former head of the Bureau of Labor Statistics, is worried. In a recent briefing paper she warned that changes in personnel policy

could lead to the politicization of the federal statistical workforce … for example, Bureau of Labor Statistics’ leaders could be fired for releasing or planning to release jobs or inflation statistics unfavorable to the President’s policy agenda.

So when inflation rises, the Trump administration could simply bully the statistical agencies into claiming that it never happened. You may say that they couldn’t or wouldn’t do such a thing. But so far people downplaying what Trump and co might do have been wrong every time, while the often-mocked alarmists have been consistently right.

The bottom line is that the direct economic consequences of Trump’s tariffs will surely be bad, but his unwillingness to accept the reality of those consequences will probably make them considerably worse.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack, where he now posts almost every day.

Reprinted with permission from Substack.

Kevin Hassett

As Trump Recession Looms, Fox Hastily Rewrites Economic History

During a March 12 appearance on Fox, National Economic Council Director Kevin Hassett rosily predicted strong growth for the American economy in the first quarter of 2025 and dismissed consumer confidence surveys indicating fears of a looming recession. Hassett boldly stated: “I'll give you an expectation that GDP growth is going to be 2-2.5% in the first quarter, at least,” even as the Federal Reserve Bank of Atlanta’s GDPNow estimate at the time predicted a contraction.

Now that the Bureau of Economic Analysis’ advance estimate has shown that GDP “decreased at an annual rate of 0.3 percent in the first quarter of 2025,” Fox anchor Sandra Smith has acknowledged that it was “a reversal from 2.4% growth in the fourth quarter [of 2024].”

However, Smith also downplayed the contraction, saying, “Some might say that wasn’t as big a drop as anticipated considering the sharp change in policies.”

Yet, as University of Michigan economist Justin Wolfers noted on April 21, dozens of economic forecasters had been consistently downgrading their expectations of economic growth since President Donald Trump took office in January.

Reprinted with permission from Media Matters.

Peter Navarro

MAGA Media Blame Advisers For Trump Tariff Nightmare

Numerous right-wing media figures are placing blame for the chaos and confusion over Trump’s “reciprocal” tariffs on two of his top economic appointees — senior trade adviser Peter Navarro and Commerce Secretary Howard Lutnick — rather than on Trump himself.

When announced, Donald Trump’s April 2 “Liberation Day” tariffs amounted to one of the largest tax hikes in American history, and despite being labeled “reciprocal,” they had absolutely nothing to do with foreign tariff rates. These new rates, the highest in more than 100 years, caused widespread market volatility and are projected to raise costs for the average American family by thousands of dollars while also increasing the risks of a recession — if they go into effect.

A week after announcing the various tariff rates on dozens of countries, Trump announced a 90-day “pause” — after his press secretary previously called reports of such a pause “fake news” — aside from a universal 10% rate on every country except China, which now has a 145% tariff rate. The Trump administration then amended the tariff rate for Chinese-exported consumer electronics to 20%. This followed comments from Lutnick about a different tariff for electronics, specifically a sectoral tariff on semiconductors.

Pro-Trump media figures on Fox and elsewhere have been blaming Lutnick and Navarro for tariff-related confusion over the past week:

  • Fox reporter Jacqui Heinrich: “Some confusion was spurred from the mixed messaging” from Commerce Secretary Howard Lutnick. Heinrich aired a clip of Lutnick saying on ABC’s This Week that consumer electronics will be “exempt from the reciprocal tariffs” but will soon receive their own sectoral tariff. Earlier in the segment, Heinrich reported that Trump “said they are still subject to that 20% charge he imposed over fentanyl.” [Fox News, Fox & Friends, 4/14/25]
  • Fox Business anchor Maria Bartiromo blamed confusion on Lutnick and Navarro saying different things on different news programs. In an interview with Trump National Economic Council Director Kevin Hassett, Bartiromo said: “You had some of your colleagues out — Howard Lutnick was on one show, Peter Navarro was on the other show — and, you know, with some of them saying, well, there are no exemptions. And then somebody else saying, well, they’re going to be in a different bucket. It created some confusion.” [Fox Business, Mornings with Maria, 4/14/25]
  • Fox Business anchor Cheryl Casone: “I'm so glad he made that clarification on Air Force One. That's why it’s so good to have the president himself come out, because they’ve had some messaging missteps — not him, people underneath him.” Host Maria Bartiromo agreed with a guest who said, “I think this back-and-forth, this confusion that I feel after reading about this all weekend long is definitely part of the strategy in keeping the other side guessing what’s going on.” [Fox Business, Mornings with Maria, 4/14/25]
  • Former Trump adviser Steve Bannon: “Let me be blunt. Lutnick, who was Elon’s pick for secretary treasury, I think he’s close to being an unmitigated disaster. We should see a lot less of Lutnick on TV.” [Real America’s Voice, War Room, 4/14/25]
  • Fox Business host Charles Payne: “Mixed and confusing messaging” from Navarro and Lutnick “has the same gut-wrenching impact as an unnecessary holding penalty that negates a touchdown.” Payne also wrote: “Some people said I was too hard on my old friend Peter Navarro on Wednesday, but I was hard on messaging from him and Lutnick.” [Twitter/X, 4/13/25]
  • Fox Business senior correspondent Charles Gasparino quoted an anonymous “senior Wall Street executive w ties to the Trump White House,” saying: “Susie (Wiles) needs to get control of Lutnick. He is a wrecking ball.” Gasparino added that his source “described @howardlutnick’s comments about the temporary nature of the tariff exemptions as ‘off message.’” Gasparino’s quote continued: “Now the market will open way down again since it appears the administration is totally confused.” [Twitter/X, 4/13/25]
  • The Daily Wire’s Ben Shapiro: “If you wanna see a real bull market, the president should fire Peter Navarro today.” Shapiro added: “It would be stupid to continue running full speed into a wall in the name of Peter Navarro's benighted idiocy with regard to trade.” [The Daily Wire, The Ben Shapiro Show, 4/10/25]
  • Shapiro: Navarro “should be nowhere near trade policy.” Shapiro also said: “Peter Navarro, who is the architect of much of this trade policy, a man who used to be a zero-growther, actually, in his early career, and then called himself Ron Vara in his own writings to create a fake name under which to attribute many of his writings. It was like Voldemort. His last name is Navarro. Get it? Ron Vara? Get it? You don't? It's dumb.” [The Daily Wire, The Ben Shapiro Show, 4/9/25]
  • MAGA personality Ian Miles Cheong: “Navarro is out. He f’d everything up.” In an earlier post, Cheong wrote: “Navarro needs to go. Thank God Bessent was there.” [Twitter/X, 4/10/25, 4/9/25]
  • Trump operative Roger Stone: “The economy? More Bessent, less Lutnick.” [Twitter/X, 4/9/25]
  • Washington Examiner senior writer David Harsanyi: “Navarro is the Fauci of finance. I hope he's done.” [Twitter/X, 4/9/25]
  • Fox Business host Dagen McDowell ridiculed Navarro for “his reciprocal trade-girl math that's kneecapping the United States.” McDowell added: “The quicker that they get him off of TV and away from numbers, the better.” Co-host Jackie DeAngelis agreed, adding: “I actually think they realize that. I think they realize Bessent should be the point person on this, and they're putting him out there. I think they're gonna pull back on Lutnick, I think they're gonna pull back on Navarro a little bit too. They need to get clear on their messaging and make sure there's no nuance in there.” [Fox Business, The Bottom Line, 4/7/25]

Reprinted with permission from Media Matters.

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