With his flurry of tariffs, government layoffs and spending freezes, there are growing worries that President of the United States Donald Trump may be doing more to harm the US economy than to fix it. A Stanford University economist, who is also co-developer of the economic policy uncertainty index, said that he feared a “Trump recession”.
According to an Associated Press report via Press Trust of India, the US labour market remains healthy with a 4.1 per cent unemployment rate and 151,000 jobs added in February, and Trump likes to point to investment commitments by Apple and Taiwan Semiconductor Manufacturing Company to show that he is delivering results.
But Friday’s employment report also found that the number of people stuck working part-time because of economic circumstances jumped by 460,000 last month.
In the leisure and hospitality sectors — these reflect consumers having extra money to spend — some 16,000 jobs were lost.
The federal government reduced its payrolls by 10,000 in a potential harbinger of the alarm being sounded by the stock market, consumer confidence and other measures of where the economy is headed. Since January, the economic policy uncertainty index has spiked 41 per cent to a level, 334.5, that in the past signalled a recession.
Nicholas Bloom, a Stanford University economist and co-developer of the uncertainty index, said that it was unclear how this would play out, but he was worried. “I have an increasing fear we will enter into what may become known as the ‘Trump recession,’” he said. “Ongoing policy turbulence and a tariff war could tip the US economy into its first recession in five years.” That last recession occurred under Trump because of the coronavirus pandemic.
For his part, Trump seems comfortable with the uncertainty that he is generating, saying that any financial pain from import taxes is a mere “disruption” that will eventually lead to more factories relocating to the United States and stronger growth.
If Trump’s gambit succeeds, the Republican would cement his reputation as an unconventional leader who proved doubters wrong. But if Trump’s tariffs backfire, much of the price would be paid by everyday Americans who could suffer from job losses, lower wages, higher inflation and, possibly, an injured sense of national pride.
In an interview to air on Sunday on Fox News’s “Sunday Morning Futures”, Trump was pressed to provide some clarity on his tariffs agenda that has caused uncertainty to fester.
The president largely hedged his answer and blamed the 6 per cent drop in the stock market over the past two weeks on “big globalists”.
“You know, the tariffs could go up as time goes by, and they may go up and, you know, I don’t know if it’s predictability,” the president said.
White House says Trump Administration’s strategy is working
The White House maintains that Friday’s jobs report showed that the Trump Administration’s strategy is working, because manufacturers added 10,000 jobs. Of the manufacturing gains, 8,900 jobs came from the auto sector, recovering some of the industry’s job losses in January.
The White House also suggested that the loss of leisure and hospitality jobs was the result of flu season and people having depleted savings and credit card debt because of President Joe Biden’s term.
“I thought it was a really, really impressive jobs report,” said Kevin Hassett, director of the White House National Economic Council, about Friday’s numbers. He said that the additional factory jobs were the result of companies “on-shoring” work because of the coming tariffs.
“This is the first of many reports that are going to look like this,” Hassett said with regard to the hiring in the industrial sector.
The stock market selloff raises doubts about whether tariffs will create the promised jobs. “Markets anticipate,” said John Silvia, CEO of Dynamic Economic Strategy. “The turn down the dark alley of tariffs signals higher inflation, slower economic growth and a weaker US dollar. It is an economic horror movie in slow motion.”
Trump has instigated a trade war in the last week with Canada, Mexico, and China, only to then hit a month-long pause on some of his import taxes because of the threat to US auto factory jobs and because of Mexico’s latest efforts to curb fentanyl smuggling.
More tariffs are coming on April 2 for Europe, Trump says, possibly putting the United States into open conflict with a continent it helped rebuild after World War II.
South Korea, India, and Brazil could also face new tariffs, Trump said in his address to a joint session of Congress on Tuesday.
Silvia said that Trump’s tariffs needed to be more targeted with regard to products and nations and set at lower rates, adding that doing so would provide an assurance that there was solid research backing the measures.
There were multiple signs of uncertainty and concerns about the tariffs in the Federal Reserve’s beige book, a collection of anecdotes from hundreds of businesses that the Fed releases eight times a year.
Published on Wednesday, the beige book included 47 references to uncertainty, up from just 17 in the previous edition in January. “Many businesses noted heightened economic uncertainty and expressed concern about tariffs,” reported the Fed’s New York branch. “Looking ahead, businesses were notably less optimistic.”
“This is the perfect storm for businesses,” said Brian Bethune, an economist at Boston College. “How can you possibly plan anything in this environment?”
Still, Treasury Secretary Scott Bessent said on Friday on CNBC that he saw positive momentum in combating inflation. He said that crude oil prices had fallen since Trump’s inauguration, as had the interest rates on 10-year US Treasury notes and mortgages.
However, interest rates on government debt are higher than they were last year in September, and the recent decline could reflect a slowdown in economic demand.
Bessent suggested that a core problem was that the US economy had become overly reliant on government deficits and that the Trump Administration would be fostering stronger growth in the private sector.
“We’ve become addicted to this government spending, and there’s going to be a detox period,” he said.
This particular form of economic rehab is coming from Trump’s Department of Government Efficiency (DOGE), which is led by T-shirted tech mogul Elon Musk, the owner of Tesla, X and SpaceX, among other companies.
The alleged savings by DOGE are still too paltry to bend the troubling trajectory of the national debt, which is largely being driven by tax revenues that are insufficient to cover the rising costs of Social Security and Medicare.
But the initiative has started to downsize the federal workforce in ways that could surface in future jobs reports. Roughly 75,000 employees took the deferred resignation plan. There are also thousands of probationary federal workers who were fired and tens of thousands of layoffs to come based on the Trump Administration’s plans.
Asked on Friday in the Oval Office if the government layoffs could hurt the overall labour market, Trump said that the economy would be great. “I think the labour market is going to be fantastic, but it’s going to have high-paying manufacturing jobs,” he said. “We had too many people in government. You can’t just do that.”
