If the subject matter weren’t so serious it would almost be amusing to watch the CNBC anchors now, contorting themselves into pretzels to try not to harshly criticize Trump’s pointless and destructive tariffs and their likely effect on the American and global economy. Many seem to have internalized the dogma that it’s a cardinal sin to castigate this patent fiscal insanity when it’s the product of a Republican administration. Or perhaps it’s simply sheer fear of being targeted by the product’s authors.
But just like the doomed HAL 9000 computer in 2001: A Space Odyssey, which ultimately implodes because it can’t cope with the internal contradiction of simultaneously lying to the waking crew of the Discovery while being perfectly aware of the nature of the ship’s mission, these self-styled, well-compensated wizards of finance continue to act as if they’re capable of balancing their actual job, which is to provide analysis, guidance and reassurance to the investing community, with the dissonant reality that an all-but certain catastrophe looms ever closer.
Fortunately there are some journalists who are not so constrained by considerations of access and polity towards the current Administration. David Frum, writing for the Atlantic, spells out the economic scenario ostensibly awaiting all of us, aptly titled “The Coming Economic Nightmare.”
Frum writes:
In January, President Trump inherited an economy that was growing strongly. Unemployment was low. Inflation had been restrained below 3 percent. If the new Trump administration had just left well enough alone, his second presidency could have coasted to economic success.
Instead, Trump single-handedly plunged the economy into chaos. In the ’70s, the economy was disrupted because the price of oil surged, a result of the major oil producers’ coordinated restriction of supply. Trump’s tariffs are like a hundred self-inflicted oil shocks, all arriving at the same time. Unless Trump changes course immediately, everything will soon cost more, possibly a lot more: groceries and automobiles, industrial magnets and tableware, mobile phones and children’s shoes.
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No American business—no business that serves the American market—will commit to any capital expenditure under these conditions. If Trump’s tariffs last for any length of time, the result will be a vast disinvestment instead. The worst of the pain may not be felt immediately. Trump advertised the tariffs many weeks in advance, opening an opportunity for businesses to stockpile inventories. Sooner or later, however, those stockpiles will dwindle. Consumers will face higher prices or outright shortages. Businesses will suffer diminished demand. Workers will be laid off.
The worst-case scenario, as Frum diagnosis it, is the probability of perpetual stagflation, a term that many may be unfamiliar with since it hasn’t occurred in this country for decades. As Frum explains, “stagflation” is the existence of recession and stagnant growth plus irredeemable inflation, a state of affairs which discourages hiring and investment, drains economic confidence and in fact, as Jimmy Carter famously explained, yields little but a national “crisis of confidence” in which prices keep inexorably rising but growth and employment deteriorates or even backslides.
The country hasn’t experienced “stagflation” in forty-plus years, but Frum believes that Trump’s unfathomable tariff fixation, if left unchecked, will leave the economy writhing in a similar space for an indefinite stretch of time.
As pointed out by James Pethokoukis, writing for the American Enterprise Institute, it isn’t simply the tariffs themselves that stand to wreak havoc on consumer spending as prices increase from the onslaught of these punitive, unnecessary taxes, but the pervasive uncertainty and distrust Trump has already provoked in almost all of our trading partners. That distrust is bad enough to dissuade them from making further investments dependent upon the stability and predictability of the U.S. economy.
As any respectable AEI economist would, Pethokoukis turns to the Wall Street Journal’s news division for support.
A group of WSJ reporters document how President Trump’s tariff unpredictability is wreaking havoc across Corporate America, turning strategic planning from science into guesswork. As airlines scale back hiring and fleet expansion while homebuilders brace for $5,000 price hikes on every house, the business landscape has become a minefield of unintended (although quite predictable by folks not working the White House) consequences.
But businesses can’t operate on “guesswork.” Nor can they compensate for an unstable environment of tariffs that, as Frum characterizes them, are “here today, gone tomorrow, maybe back the day after that, maybe not.”
Frum recounts the often-desperate measures that American presidents attempted to salvage the U.S. economy and combat inflation in the 1970’s by employing price controls, taxes and subsidies to little lasting effect. What he doesn’t mention is that at least these measures were employed by reasonably serious presidents working in tandem with a reasonably economically- savvy Congress who could at least be seen as trying to fix the problem. Trump certainly has no such savvy Congress now and virtually no potential of active cooperation with one, even if the Democrats retake the House in 2026. With little economic literacy of his own, by nature he tends to fixate on whatever his closest advisors tell him, and none of those advisors demonstrates any significant degree of fiscal comprehension, let alone “savvy.”
Frum notes:
The most dangerous temptation that Trump may face is to impose some form of capital controls to stop investors from dumping dollar assets. Trump’s trade war has driven a sell-off of U.S. Treasury bonds, which raised interest rates in the United States. Regimes moving toward protectionism sometimes try to block investors from rushing to the exits. The United States has more capacity than most to try such measures. Among their many costs, they dissuade investors from ever trusting your country again.
So even when the extensive damage wrought by these tariffs has settled in, after consumers have cut their spending as prices on virtually everything rise, and the economy has careened into an all-but-certain recession, and even after a competent Democratic Congress (hopefully) retakes the reins, it will be years if not decades before the effects of that damage begin to ebb. As Frum observes, “Trump’s tariffs are dislocating planet-wide networks of trade,” and “sliced trillions of dollars from the value of U.S. corporations.”
Companies spooked by “trillions of dollars” suddenly erased from their value tend not to hire, and they do not invest. With a few exceptions, they struggle simply to maintain equilibrium and stay afloat. Meanwhile, prices do not come down because, as Frum points out, the supply networks for these same companies have been distorted and compromised by tariffs and retaliatory tariffs, perhaps permanently, while nations who were formerly our friends move to readjust their trade agreements to exclude a volatile and untrustworthy U.S. regime.
Trump’s cruel and arbitrary executive culture-war actions, from illegal deportations without due process; to imposing a White Nationalist sensibility over civil rights enforcement; and to insulting, threatening, and even prosecuting judges who oppose him or his minions, have all conjured up a frankly revolting, dystopian social vision for this country. Now it appears that his bizarre and unfathomable tariff fixation — if it continues— portends much the same for our economic future.
