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What a second Trump term means for the U.S. economy

What a second Trump term means for the U.S. economy


If President-elect Donald Trump follows through with the expansive fiscal policies he has proposed, the financial situation of the U.S. government could face significant challenges. This warning comes from an analysis by credit rating agency Moody’s, which is closely reviewing its assessment of America’s credit rating. As discussions about fiscal health intensify, it’s crucial to explore what a second Trump term might mean for the U.S. economy.

In an insightful conversation on the “Marketplace Morning Report,” host David Brancaccio spoke with Jason Furman, a Harvard professor and former chair of the White House Council of Economic Advisors under President Obama. They discussed the potential repercussions of Trump’s proposed fiscal policies on U.S. economic health.

Moody’s highlighted that if President Trump is true to his word regarding tax and expenditure promises, the implications for the federal government’s fiscal health are worrisome. The professor emphasized the real cost of these promises: Trump has frequently suggested eliminating taxes in several areas, cumulatively amounting to more than $10 trillion in commitments. This could result in a dramatic increase in the federal deficit, contingent on Congressional approval of these measures.

Brancaccio pointed out that voters often express cynicism regarding political promises. However, Furman conveyed that the concerns run deeper than mere skepticism; many economists believe that proposed policies might not only be impractical but may also lead to inefficient economic designs, often labeled as many pandering giveaways.

Fiscal policy naturally impacts everyday life, and the consequences of increased government borrowing could drive market interest rates higher. Furman explained that while the direct effects of fiscal policy might initially seem favorable, they could lead to higher inflation, increased interest rates, or even future tax hikes. This chain reaction raises concerns about the economic stability of a government already grappling with a large deficit.

The issue of inflation has been a significant point of contention for many voters, a sentiment further amplified by Trump’s plans to impose higher tariffs. These tariffs, perceived by many as a form of tax, could fuel inflationary pressures across the economy. For instance, Trump’s promise of imposing tariffs of 10% or 20% on goods from various countries, including allies such as Australia and New Zealand, raises questions about the rationale behind these measures. If enacted, these tariffs would likely increase the prices consumers pay, effectively reducing their disposable income and representing a shift toward higher inflation metrics.

While some Republicans view tariffs and other promises as bargaining chips in international negotiations, the merit of such an approach has been debated. Economists like Furman argue that bargaining with countries over tariffs is effective only when there are clear goals. With China, for example, the economic tensions create a dire need for negotiation. However, applying blanket tariffs to numerous countries without a clear rationale can destabilize economic relations and create unnecessary strain on global trade.

As the recent electoral cycle concluded, exit polls indicated that nearly 45% of voters felt worse off than four years ago. Furman suggested this perception may stem from the unique recovery trajectory of the U.S. economy post-pandemic, where many citizens felt financially insulated due to earlier stimulus measures. Even though the economic indicators, such as a relatively low unemployment rate, suggest an improved landscape, it hasn’t translated into overwhelming voter satisfaction.

The contrasting situations of Trump’s presidency and Biden’s subsequent term highlight this irony. While the Biden administration introduced stimulus checks to counteract the pandemic’s effects, the lasting benefits of those measures have created a sense of disillusionment as people appear to forget those moments of economic relief.

Both Trump and Biden have faced scrutiny for their stimulus strategies. While Furman acknowledged that the initial stimulus checks during the pandemic were essential as the economy faced unprecedented challenges, he criticized subsequent payments aimed at bolstering an already recovering economy as unnecessary.

In conclusion, the potential economic ramifications of a second Trump term raise fundamental questions about fiscal responsibility. Policymakers and economists will need to scrutinize the balance between stimulating economic growth and maintaining sustainable government finances. As the nation stands at this crossroads, continued discussions around fiscal policies, tariffs, and their outcomes will be vital in shaping the U.S. economy’s future. The challenge lies not only in implementing policies but ensuring that they work in favor of long-term economic stability, a concern that resonates with many Americans today.

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