William Pesek
As Donald Trump returns for a second round of shaking up the global economy — especially China — he may end up doing far more damage at home than abroad.
Though this argument has been made here and there since the US president-elect’s win on November 5, the picture the International Monetary Fund is painting about the next four years is worth considering.
On the eve of Trump’s January 20 inauguration, the IMF’s chief economist, Pierre-Olivier Gourinchas, counts the ways tariffs, trade curbs and blunt force responses to waning US competitiveness could backfire on the biggest economy.
The bottom line: the next wave of tariffs Trump 2.0 threatens could make trade dislocations worse, reduce investment, distort market pricing mechanics, disrupt supply chains and spook global markets in chaotic and unproductive ways.
The tariffs alone, Gourinchas worries, “are likely to push inflation higher in the near term.”
Huge tax cuts in an economy at or near full employment could hasten America’s path toward overheating. Trump’s mass deportation hopes would cause even greater disruptions for restaurants, construction and myriad other businesses already short of workers. Labor costs could surge as a result, intensifying inflation pressures.
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