Presidents typically do everything in their power to steer clear of recessions, often to the extent of avoiding the term altogether. Yet, in recent weeks, President Trump and his advisors have taken a different tack, openly acknowledging that a recession could happen and suggesting that it might not be all that detrimental.
Howard Lutnick, the Commerce Secretary, has asserted that Trump’s policies are “worth it” even if they lead to a recession. Meanwhile, Scott Bessent, the Treasury Secretary, hinted that the economy might require a “detox period” after years of relying heavily on government spending. Trump himself has mentioned a “period of transition” as his economic policies start to take root.
These statements seem to reflect an attempt to align political rhetoric with economic circumstances. Trump had pledged to eliminate inflation from “Day 1” and proclaimed during his inauguration that “the golden age of America begins right now.”
Contrary to these promises, inflation has proven persistent. Though Trump’s tenure was only a couple of months old at the time, economists were sounding alarms that his tariff strategy would likely exacerbate inflation. Consumer and business confidence took a hit, and stock markets wavered significantly, largely due to the unpredictable nature of Trump’s policies.
“It’s the sort of rhetoric you use when your policy isn’t working out as planned and is visibly impacting people,” commented Sean Vanatta, a financial historian at the University of Glasgow.
Trump’s supporters claim their ambitions extend beyond political platitudes. They aim to cut down on imports, rejuvenate manufacturing roles, and “re-industrialize” America. They argue that even if this means higher costs in the short term, the eventual winners will be American workers.
“Accepting short-term discomfort for long-term benefits is indeed a crucial trade-off,” noted Oren Cass, the founder of American Compass, in favor of many of Trump’s economic policies. “It’s promising to see leaders willing to discuss these realities candidly.”
Yet, Cass criticized the inconsistent application of tariffs, suggesting it risks compromising their intended effectiveness.
Many economists appreciate the necessity for leaders to sometimes make tough choices for long-term gains, but few endorse the specific strategies employed by Trump’s administration.
“The notion of short-term pain for long-term gain isn’t inherently flawed,” said Greg Mankiw, a Harvard economist and former chairman of the Council of Economic Advisers under President George W. Bush. However, he critiqued Trump’s trade policies as “short-term pain leading to more long-term pain.”
Turning to tariffs, Trump and his aides have admitted that these will increase import costs. Bessent has framed this as a necessary step to wean the U.S. off cheap foreign goods, particularly those from China.
“The American dream doesn’t rely on Chinese trinkets,” Bessent stated on “Meet the Press,” emphasizing a focus on affordable essentials like housing, cars, and real wage growth.
Despite these assertions, most economists argue that cutting imports may not benefit Americans overall. While competition from cheaper overseas producers has indeed hurt some sectors, it’s also made life more affordable for Americans, effectively boosting their purchasing power by leaving more money in their pockets.
Economists argue that Trump’s sweeping tariffs could backfire. These tariffs don’t just impact consumer goods but also the very components U.S. manufacturers rely on, inflating costs for everyone.
“If their goal is re-industrialization, they might find tariffs to be counterproductive,” said Kimberly Clausing of UCLA. “Making, manufacturing more challenging when all inputs cost more.”
Though there’s now some reconsideration of free trade’s traditional principles, spurred by scholars like David Autor from M.I.T., who identified the disruptive impact of cheap Chinese imports, tariffs imposed today can’t undo past disruptions. And trying to resurrect dated industries isn’t sensible.
Instead, Autor advises focusing on high-value manufacturing sectors that stimulate innovation. While tariffs could play a part, they need to be specific and combined with investments. The Biden administration pursued such investments in sectors like semiconductors and green energy, whereas Trump has not replicated these efforts.
“It can’t be just about tariffs,” Autor insisted. “Investment is essential too.”
Addressing fiscal health, economists sympathize with Bessent’s concern that the economy’s dependence on government spending has grown excessive. However, cutting deficits is no simple task, especially when it would involve difficult decisions about spending cuts and tax hikes. Delaying would only intensify future pain, cautioned Alan J. Auerbach from UC Berkeley.
Unfortunately, economists contend that Trump’s proposals don’t substantially address the deficit. Efforts by the Department of Government Efficiency affect only minor segments of the budget.
Republican proposals for more substantial cuts, such as targeting Medicaid without tax increases to offset these cuts, might deepen deficits due to extensions of Trump’s 2017 tax cuts.
Looking at who bears these economic shifts’ costs, it’s clear that low- and moderate-income families, already hit by Medicaid cuts and reduced services, along with those facing higher tariffs, are poised to suffer the most.
“The real burden falls on low-income Americans who initially supported Trump with economic hopes,” Clausing said. “With rising costs and slashed safety nets, their prospects dim.”
Even proponents like Cass voice concern, noting that the tax adjustments seem counterproductive to enhancing the middle class.
“A recession would likely hit lower-wage workers hardest,” noted Jessica Fulton from the Joint Center for Political and Economic Studies. And the long-term repercussions of job losses in such a climate are significant.
“Discussing temporary harm overlooks the prolonged effects of these decisions,” Fulton concluded.
