Wednesday, December 18, 2024

'Tremendous uncertainty': Economists say new tariffs could lead to double-digit unemployment

Image via Walmart/Flickr.
December 17, 2024
ALTERNET

The U.S. economy is currently healthy by all measurable metrics including unemployment rate, inflation rate, consumer confidence and GDP growth. But some economists fear that may change if President-elect Donald Trump follows through on one of his core campaign promises.

CNN reported Tuesday that conversations about "stagflation" (the official economic term for a combination of stagnant economic growth paired with high inflation seen in the U.S. between 1974 and 1981) are circulating among leading economists. JPMorgan CEO Jamie Dimon warned in May that the U.S. economy could be headed for a period of stagflation in the coming years based on President Joe Biden's economic response to the Covid-19 pandemic

"I look at the amount of fiscal and monetary stimulus that has taken place over the last five years — it has been so extraordinary; how can you tell me it won’t lead to stagflation?" Dimon said.

But now, as Trump prepares to take office next month while promising to impose 25% tariffs on goods imported from Canada and Mexico and another 10% on Chinese goods, fears of stagflation are once again flaring up. Federal Reserve Chairman Jerome Powell said earlier this year that the period of stagflation that followed the Saudi Arabian oil embargo in the 1970s was marked by "10% unemployment" along with "high single-digits inflation and very slow growth."

As CBS News reported last month, Trump's tariff would cause a significant spike in the prices of many popular consumer goods imported from overseas, like laptop computers, video game consoles and smartphones. iPhones, which are made in China, could see a price increase of more than $200 per device if Trump's proposed tariff is imposed. But business leaders are hopeful that Trump will put a timeline on his tariffs going into effect that will allow companies to reorient their supply chains in order to avoid large price hikes.

“These tariff increases, if implemented shortly after Inauguration Day, would impart a modest stagflationary shock to the U.S. economy, boosting our inflation forecasts in the near term, but also dampening our economic growth outlook,” Wells Fargo economists stated after the 2024 election. “Should this occur, the probability of a stagflation scenario in our growth model would likely increase.”

“That said, there is tremendous uncertainty about future potential policies,” the bank added.

Click here to read CNN's report in its entirety.



'Prone to crises': Trump’s 'sweeping policy changes' could make economy dangerously unstable


New York City's financial district in 2012 (Wikimedia Commons)

December 18, 2024

During his 2024 presidential campaign, Donald Trump repeatedly blamed President Joe Biden and Vice President Kamala Harris for inflation in the United States. His messaging worked: Trump pulled off a narrow victory, defeating Harris in both the electoral and popular votes.

Trump didn't win by a "landslide," as "War Room" host Steve Bannon, Rep. Rick Scott (R-Florida) and other far-right Trump supporters have been claiming. The president-elect, according to the Cook Political Report, won the popular vote by roughly 1.5 percent. But he successfully used voters' anxiety over inflation to his advantage.

Nonetheless, the U.S. has had low unemployment rates under Biden's presidency. According to the U.S. Bureau of Labor Statistics (BLS), unemployment was only 4.2 percent in November.

In an article published on December 18, the New York Times' Ben Casselman emphasizes that Trump is inheriting a "stable" economy from Biden/Harris — and addresses fears that the stability coud disappear.

"After five years of uncertainty and turmoil," Casselman explains, "the U.S. economy is ending 2024 in arguably its most stable condition since the start of the coronavirus pandemic. Inflation has cooled. Unemployment is low. The Federal Reserve is cutting interest rates. The recession that many forecasters once warned was inevitable hasn’t materialized."

The Times reporter continues, "Yet the economic outlook for 2025 is as murky as ever, for one major reason: President-elect Donald J. Trump. On the campaign trail and in the weeks since his election, Mr. Trump has proposed sweeping policy changes that could have profound — and complicated — implications for the economy."

Possible Causes for concern, according to Casselman, include new tariffs, mass deportations, and regulation changes that could "make the financial system more prone to crises over the long run."

Michael Gapen, chief U.S. economist for Morgan Stanley, told the Times, "It is a very uncertain outlook, and most of that uncertainty comes from potential changes in policy…. There's a wide range of potential outcomes, and a base-line outlook isn't quite as useful as it is in normal times."

Economist Michael Strain of the American Enterprise Institute warns that changes in "trade and immigration policy could be extremely disruptive to the economy" and lead to slow growth combined with high inflation.

Strain told the Times, "In this scenario, the price of imported goods, the price of groceries, the price of restaurant meals, the price of homes all shoot up dramatically."

Read Ben Casselman's full New York Times article at this link (subscription required).


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