Trump's Economic Policies Could Lead To A Worldwide Recession— Or Even Worse

Santayana: “Those Who Cannot Remember The Past Are Condemned To Repeat It”

There’s little doubt that Musk and Trump plan to drag the rest of the world into their march towards illiberal authoritarianism. Musk hs endorsed Germany’s new Nazi part (the AfD) and though the U.K. just had a landslide general election 5 months ago— and with a 60% turnout, elected 411 members of parliament from Labour, 121 Conservatives, 72 Lib-Dems and just Musk’s neo-fascist Reform UK just 5 seats— Musk is demanding new elections immediately. Joe Mayes wrote that on Wednesday night Musk “made a string of posts overnight on Twitter criticizing UK policy. He questioned Starmer’s record as Britain’s Director of Public Prosecutions before entering politics, called for the release from prison of the far-right agitator Tommy Robinson, whose real name is Stephen Yaxley-Lennon, and said that ‘only’ Nigel Farage’s Reform UK party can ‘save’ Britain... Musk’s volley of social media posts are the latest in a series of attacks he’s made on the British government. With Trump giving Musk a key domestic role in his incoming administration leading a department to improve government efficiency, the billionaire’s repeated attacks on a key US ally threaten to muddy the so-called special relationship between the UK and US.”

Mayes noted that “Starmer and his government have so far brushed off Musk’s attacks and downplayed the threat posed by Reform. Starmer has a large parliamentary majority and there is currently no prospect of him losing a no-confidence vote in the House of Commons, which would be necessary to trigger fresh elections earlier than he wants. Britain’s next general election is due in 2029.”

Not Ford and Hitler, but close enough

Perhaps more serious is how economists see Trump’s trade and fiscal policies— sure to damage the U.S. economy— spilling over to the world economy. A quartet of Financial Times reporters wrote that “Trump’s vision to reshape the world’s largest economy through protectionist policies that put ‘America First’ will damage growth, according to Financial Times economists’ polls that contrast with investors’ bullishness over the US president-elect’s plans. Surveys of more than 220 economists in the US, UK and Eurozone on the economic impact of Trump’s return to the White House showed most respondents believed his protectionist shift would overshadow the benefits of other elements of what the president-elect has dubbed “Maganomics.”

Trump’s policies are expected to spur inflation in the U.S. and, in all likelihood, “‘a global slowdown which then will come back and hurt the US later on,’ said Şebnem Kalemli-Özcan, a professor at Brown University who also sits on the New York Fed’s economic advisory panel. ‘His policies are also inflationary, both in the US and the rest of the world, hence we will be moving to a stagflationary world.’”

Trump has yet to lay out a comprehensive economic policy prospectus, leaving analysts to base their outlooks on pledges and threats made on the campaign trail.

Those include plans to impose blanket tariffs of up to 20 per cent on all US imports, mass deportations of undocumented workers, slashing red tape and making tax cuts introduced in 2017 permanent.

Trump, a self-described “tariff man”, has a long-standing and deep-rooted belief that the US needs to close its trade deficit and boost homegrown production.

“The announced policies include substantial tariffs and deportations of immigrant workers,” said Janice Eberly, a former Obama administration senior US Treasury official now at Northwestern University. “Both tend to be inflationary and likely negative for growth.”

Overall, more than half of the 47 economists polled specifically on the US economy expect “some negative impact” from the Trump agenda, and another tenth forecast a “large negative impact.” On the other hand, a fifth of those surveyed expect a positive impact.

…A separate survey by the FT showed that Eurozone economists were even more pessimistic about the impact of Trump policies in their region than those in the US, with 13 per cent of analysts saying they expected a large negative effect and another 72 per cent forecasting some negative repercussions.

For the Eurozone the main concern is about manufacturing production, especially in Germany, the region’s biggest economy. 

Martin Wolburg, senior economist at Generali Investments, highlighted the possibility of the country’s car industry being “especially targeted” by Trump.

Trump’s threat of a 60 per cent levy on China “could further challenge European industries,” said Christophe Boucher, chief investment officer at ABN Amro Investment Solutions, as it would raise the prospect of Beijing flooding the region with cheap products.

While the UK is seen as better insulated from tariffs, thanks to its large services sector, Alpesh Paleja, lead economist at the CBI, warned that the country would be exposed to the “second-round impact” should tariffs weigh on Eurozone growth.

In the UK, more than 56 per cent of almost 100 respondents expected some negative impact, with many speaking of the drag on sentiment from the prevailing climate of uncertainty ahead of Trump’s inauguration on January 20. Just over 10 per cent forecast some positive impact. 

“The Trump administration will be an ‘unpredictability machine’ which will dissuade business and households from taking long-term decisions with ease,” said Barret Kupelian, chief economist at PwC UK. “This will inevitably have an economic cost.”

Basically what the imbecile who never attended any classes at Wharton wants to pass a modern-day version of Smoot-Hawley, the 1930 tariff act— and one of the most infamous pieces of economic legislation in U.S. history, which worsened and spread the Great Depression. It triggered a catastrophic global trade war. 

In the 1920s American farmers were being wiped out by declining crop prices due to overproduction, falling demand after World War I and mounting debt and foreclosures. Many rural and Midwestern voters demanded government intervention, viewing tariffs as a way to protect American agriculture from cheaper imports. The GOP, dominant in the 1920s, blindly embraced protectionism as part of its economic platform, believing tariffs could shield American industries and farmers. The Democratic Party, in contrast, supported free trade and opposed tariffs, arguing they benefited industrial elites at the expense of consumers and global stability.

Rep Willis Hawley (R-OR) and Senator Reed Smoot (R-UT) introduced the bill, originally intending it to focus on agricultural tariffs, but, under pressure from lobbyists for manufacturers and business interests, quickly expanded it to include industrial goods. The process became a free-for-all, with hundreds of amendments added by lawmakers, leading to tariffs on over 20,000 imported goods. Hoover, under pressure from his party and business and agricultural interests signed the bill— and despite warnings from economists and bankers— signed the bill. Foolishly— and like Trumpanzee today— Hoover hoped tariffs would stabilize prices and improve employment, underestimating the international backlash.

Average tariff rates on dutiable imports rose from 38% to 60%, among the highest levels in U.S. history, though not as high as what Trump claims to be looking at. Major trading partners, including Canada, France, and Germany, retaliated with their own tariffs, leading to a collapse in global trade.

Smoot-Hawley became a symbol of Republican economic mismanagement, tarnishing Hoover’s presidency and contributing to his landslide defeat to FDR in 1932, when Republicans won only 6 states to Roosevelt’s 42. Roosevelt took 57.4% of the popular vote to hoover’s 39.6% and won 472 electoral college votes to Hoover’s 59. The Democrats took a dozen GOP Senate seats, giving them a 59-36 majority. And in the House, the GOP lost 101. Seats, giving the Democrats a 313-117 majority. The Democrats shifted U.S. trade policy toward free trade with the Reciprocal Trade Agreements Act, which allowed the Roosevelt to negotiate bilateral trade agreements without congressional approval.

Today, Smoot-Hawley is viewed by everyone but Trump and the MAGAT base as a cautionary tale about the dangers of economic nationalism and extreme protectionism, particularly during periods of global instability. It highlighted how domestic political pressures can lead to disastrous foreign policy and economic outcomes when international coordination is ignored.