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Monday, August 11, 2025

11: Trump

The Economy Is Starting to Pay for Trump’s Chaos Since President Trump took office, economists have been waiting for his policies to work their way through the U.S. economy and reveal their consequences. The soft data, mostly surveys of consumers and businesses that track how people feel about the economy, turned down sharply months ago, while the hard data — jobs, G.D.P. growth, inflation — all seemed fine. But recently, a telling series of hard economic data rolled in that has rightfully raised alarm bells about slowing growth and increased inflation — a dreaded economic combination known as stagflation. ............ Mr. Trump’s tariffs are now clearly fueling inflation, particularly in goods such as home appliances, cars and food. In the first six months of the year, real (that is, inflation-adjusted) consumer spending, the main driver behind business cycles and robust economic expansion, barely grew, after rising 3 percent last year. G.D.P. growth slowed by about half, to 1.2 percent this year from 2.5 percent last year. When overall growth falls that sharply, the labor market tends to follow, which is precisely what happened: Job growth, at 35,000 per month on average between May and July, is dangerously close to stall speed. .......... Whether it’s historically high tariffs that never quite seem to stabilize, deportations that threaten to seriously disrupt labor supply in sectors like construction and health services, or a reverse-Robin Hood, budget-busting bill that takes money away from those most likely to spend it, Mr. Trump’s policies have pushed economic uncertainty to levels last seen during the onset of the pandemic. This uncertainty has damped investment, hiring and consumption, while the tariffs increase prices. In other words: stagflation. ............ if Mr. Trump’s stagflation continues to grow, it will be different in one very important way: The economic damage will be almost entirely self-inflicted. In the ’70s, stagflation was caused not by an unconstrained president but by “exogenous shocks,” meaning big, unexpected disruptions originating from events outside the country and exacerbated by the inaction of the Federal Reserve to offset them. ............. Because of the oil embargo the Organization of Arab Petroleum Exporting Countries imposed on the United States in 1973 and the Iranian Revolution in 1979, the price of oil increased more than tenfold. As a result, by 1980, the United States was spending roughly six times as much on oil as it was in 1970. That change reverberated throughout the economy and caused inflation to reach a high of nearly 15 percent by the end of the decade. ........... Arthur Burns yielded to pressure from the Nixon White House to disregard concerns about rising inflation and keep interest rates low to hold down unemployment. (Sound familiar?) ...........

The resulting stagflation crisis ended only when a new Fed chair, Paul Volcker, raised rates to almost 20 percent in 1980, leading to a deep and painful recession.

........... And fortunately, today’s Fed is actively applying the lessons learned from the Volcker era. Although Mr. Trump constantly harasses Jerome Powell to aggressively lower interest rates — calling for an unheard-of and reckless cut of 3 percentage points ..........

Americans’ biggest complaint about the current economy: the cost of living.

........... his destructive policy agenda could be reversed, although time is running out. Were Mr. Trump to declare victory and end his trade war, the stagflation outlook would meaningfully diminish. Consumers and workers would quickly see their prospects improve. But if anything, Mr. Trump appears to be doubling down. .......... In both its causes and its symptoms, what we’re experiencing isn’t your father’s stagflation. With Mr. Trump running the show, there’s an uncomfortably high chance that it’s going to be yours.

The Tariffs Kicked In. The Sky Didn’t Fall. Were the Economists Wrong? Just as the models predicted, growth has indeed slowed, and inflation has risen. If you look at the first half of the year as a whole, there is more than a hint of stagflation, that dreaded combination of slow growth and inflation.......... Not all of the slower growth and higher inflation is the result of tariffs. Many factors are at play, including substantial reductions in immigration. ........ Half a percentage point may not sound like much, but in an economy as huge as the United States’, it amounts to a loss of about $150 billion. That’s the equivalent of every household in America taking around $1,000 and lighting it on fire — then doing it again every year. Forever. ............ Mr. Trump pulled back from the most consequential tariff, 145 percent on products from China, which would have been like an immediate trade embargo between the world’s two largest economies, and has pared back some of his tariff increases on key economies like the European Union and Japan. ........... imported goods account for only 11 percent of the U.S. G.D.P. Most of the economy is made up of sectors like health, education and other services that are not hugely affected by tariffs ........ other prices have fallen — most notably for gasoline, where, paradoxically, tariffs have weakened the global economy and thus put downward pressure on oil prices. ......... businesses’ surging imports at the beginning of the year to get ahead of the tariffs, have also helped to restrain inflation but will not continue to do so for much longer. Another factor is that many businesses have been eating the tariff increases to avoid enraging consumers or Mr. Trump, but that is something they can do for only so long; eventually they will have to raise prices if they want to avoid continued losses and bankruptcy. ........... Finally, there is the stock market, which is unfazed and setting records. I do not have a particularly tidy explanation except to note that the stock market reflects many factors other than the economy, including rational ones like the potential for A.I. and irrational ones like bubbles. I long ago gave up trying to understand the daily ups and downs of the market and just buy and hold, no matter how turbulent the events around me. .............

It is still early days, and things could get worse as more tariffs kick in and all the effects work their way through the economy.

......... When economists and business leaders were warning about recession, it wasn’t just because of what tariffs did to the $3 trillion of our economy that was imports. It was more because of what record levels of economic policy uncertainty would do to the other $26 trillion, by stymieing investment decisions and consumer spending. ............. The United States is lucky. We have tremendous natural resources, a broad and skilled work force, the world’s best universities and cutting-edge technology companies, and we issue what is the closest thing to a global currency. This gives us a lot of resilience in the face of even very large-scale policy shocks and mistakes. No political movements in, say, Singapore or Sweden would ever dream of completely walling their countries off from the rest of the world; they understand that absent global trade, they could not possibly make the wide range of goods and services that their citizens want, let alone support the well-paying export jobs that enable them to enjoy a good standard of living. It is more imaginable to Americans that we could survive as an autarky, which is how we have been able to undertake this sharp turn in policy. But

the combination of restrictions on trade, immigration, research and innovation will all add up to real money.

Our President Is Economically Illiterate When my kids were in college, I insisted that they each take at least one economics course. Being economically illiterate ranks, in my mind, just below not being able to read or write. ......... Now we have a president who is fundamentally ignorant of the most basic and incontrovertible economic principles, as evidenced in his latest round of foolhardy tariffs (and in so many other ways). ........... President Trump has been told over and over again by economists of all political persuasions that tariffs are much like a sales tax and will ultimately be paid by American consumers; he likely would have been taught that concept during his time at the University of Pennsylvania’s Wharton School. ......... the cost of many imported items has been escalating. .......... Mr. Trump’s ignorance goes far beyond the tariffs-are-a-tax concept. He believes trade deficits are tantamount to “losing” money to other countries. Losing money is what happens when $100 falls out of your wallet. When you spend $100 to buy new earbuds made in China, you haven’t lost it; you’ve spent it on earbuds. ............ (Unsurprisingly, Mr. Trump also regularly misstates the size of the trade deficit. It’s not the $2 trillion he claims; last year it was under $1 trillion.) ...........

the tariffs that Mr. Trump is imposing reflect no rhyme or reason. What is the point of imposing a 40 percent tariff on poor Laos? The country is hardly in a position to buy much from us.

............ Mr. Trump’s fervent belief in tariffs seems to have originated in the 1980s, as Japanese cars flooded into the United States and wreaked havoc on domestic car manufacturers. Yet those same carmakers — such as Ford and General Motors — have been among the most vociferous opponents of his tariff regime today. Their latest financial results suggest that they stand to lose somewhere between $1 billion and $4 billion in earnings this year from Mr. Trump’s tariffs. ............... his harsh and wrongheaded criticism of the policies of the Federal Reserve and its chairman, Jerome Powell. .......... Robust economies need higher interest rates to restrain inflation. ....... Trump seems not to understand inflation. He repeatedly — sometimes on multiple occasions in a single week — pronounces that we have “no inflation.” ....... Another reason for our elevated interest rates is the massive budget deficits that we have been running, deficits that Mr. Trump made worse with the tax cuts he pursued in his first term and continues to push in his second. His signature domestic policy law will increase the deficit — and therefore our borrowing needs — by an estimated $3.4 trillion over the next decade. ................ Mr. Powell’s term is coming to an end next year, and the prospect of Mr. Trump picking his successor is downright scary. In his first term, Mr. Trump tried to appoint several individuals to the Federal Reserve Board who were so manifestly unqualified — with views that were so wildly outside of any accepted principles of monetary policy — that many Republicans refused to support them and they were forced to withdraw. ............

The president barely seems to comprehend supply and demand, which are among the most basic concepts in economics.

.......... To be fair, the president occasionally shows glimmers of economic comprehension. ......... “I know better than anybody what’s good for the Market, and what’s good for the U.S.A.,” Mr. Trump proclaimed in a recent social media post. “People don’t explain to me, I explain to them!” Perhaps he should consider flipping those two clauses.

What C.E.O.s Really Think About Trump’s Tariffs

What Putin Hopes to Gain From a Summit With Trump The American leader has agreed to a meeting with the Russian president in Alaska next Friday to discuss ending the war in Ukraine........... The West has treated Mr. Putin largely as a pariah since Russia invaded Ukraine in 2022, causing hundreds of thousands of deaths and widespread destruction for both countries. The mere fact that an American president is willing to meet with him is considered a diplomatic victory for the Kremlin. ........ Worried about being sidelined, European and Ukrainian leaders met on Saturday outside London with top American officials to discuss their concerns. ........... While the Russian leader has been eager for a meeting, Mr. Putin had balked at taking any concrete steps toward ending the war while he believed that Russia was advancing on the battlefield. .......... The Russian request for a summit came just as the deadline loomed for Mr. Trump’s new primary and secondary sanctions. .............. Mr. Putin believes that Russia’s vast nuclear arsenal still makes it a world power, even though Russia produces very little that the rest of the world wants apart from energy. ................. Russia and Ukraine have held three rounds of talks in Istanbul, and Moscow has used those meeting to try to achieve what it has been unable to win on the battlefield. .......... Mr. Putin will most likely make the same maximalist demands at any meeting with Mr. Trump: claiming eastern Ukraine as Russian; keeping Ukraine out of NATO; preventing the alliance from expanding into former Soviet realms; limiting the size of Ukraine’s military and ensuring that its government is friendly toward Moscow. ........... One of Mr. Trump’s campaign promises was to end the war in Ukraine in 24 hours. That deadline has long passed, but he still considers himself a supreme deal maker. He has also made no secret of wanting a Nobel Peace Prize, and has linked his deserving of the prize to his efforts in Ukraine, among other conflicts............

Although Mr. Trump has threatened severe direct and secondary sanctions against Russia in order to try to end the war, he has conceded that they might not have any effect.

................. Mr. Trump said in an interview with CNBC on Tuesday that “Putin will stop killing people if you get energy down another $10 a barrel.” But Mr. Trump has not moved to sanction China, the largest importer of Russian oil, and Indian officials have said they intend to continue buying Russian oil. ............. European leaders are concerned that Mr. Trump and Mr. Putin will come to an agreement on their own that they will then try to impose on Ukraine. ......... Despite the enormous toll that the war has taken on Ukraine in death and destruction, polls indicate that a solid majority of Ukrainians reject the idea of making the territorial and other concessions demanded by the Kremlin.

Trump Is Building a Maximalist Government In a series of actions this week, the president sought to expand the government’s reach.

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