DC insider explains why Trump could hit an economic slump — and soon

Today I’d like to talk with you about the economy.

Quick reminder: Trump was put into office mainly to rescue an economy that most voters thought was lousy.

So what’s been Trump’s biggest economic initiative so far?

As of midnight Monday, he imposed 25 percent tariffs on imports from Canada and Mexico and 20 percent on imports from China. This is a big deal. Canada, Mexico, and China are America’s three largest trading partners. They account for more than 40 percent of U.S. imports and exports.

What’s the likely result?

1. Trump and his lackeys believe (or say) that the most likely result is a positive one for American workers. Global corporations (including American-based ones) will relocate their operations from Canada, Mexico, and China into the United States in order to sell their goods at a competitive price here — resulting in more and better jobs for Americans.

But the Trump view doesn’t take account of Canada, Mexico, and China retaliating against the United States with tariffs on American exports, thereby reducing the number of jobs for Americans in export industries.

Tariffs on their own do not create more American jobs or lead to more U.S. production. In fact, Trump's last trade war cost roughly 300,000 jobs.

2. A second view holds that the biggest impact will be a negative one — for American consumers. Although American importers pay the initial tab for tariffs on goods from Mexico, Canada, and China, importers will pass on much of the costs to their U.S. customers.

As a result, American consumers will pay more for thousands of products — cars assembled in Canada and Mexico, stoves and refrigerators assembled there, crude oil, beer, chocolate, cucumbers, timber, toilet paper, and hot-rolled iron, to name a few.

The biggest negative impact will be on lower-income Americans who will have to shell out a larger portion of their paychecks for all these things.

3. A third view is that, because so many final goods (as well as services) will be affected across the entire economy, the biggest impact of the tariffs will be on overall inflation — pushing all prices upward.

The tariffs will give big corporations cover to jack up prices and pad their profits at our expense.

4. A fourth view holds that the biggest impact of the tariffs will be to slow economic growth in the U.S. — as all buyers, including corporations and foreign consumers, pull back from spending.

This could cause the U.S. economy to contract. Two quarters of contraction means recession. Recession plus inflation is called “stagflation.” That’s particularly bad.

Stock markets have plunged on news of the tariffs. The S&P 500 has now dropped below its Election Day level, erasing any Trump-related gains.

So today’s Office Hours question: What do you think will be the biggest impact of the Trump tariffs?

What do you believe will be the biggest impact of the Trump tariffs?

Robert Reich is a professor of public policy at Berkeley and former secretary of labor. His writings can be found at https://robertreich.substack.com/