Donald Trump's economic delusions are already hurting America
In his speech to Congress on March 4th President Donald Trump painted a fantastical picture. The American Dream, he declared, was surging bigger and better than ever before. His tariffs would preserve jobs, make America richer still, and protect its very soul. Unfortunately, in the real world things look different. Investors, consumers and companies show the first signs of souring on the Trumpian vision. With his aggressive and erratic protectionism, Mr Trump is playing with fire.
By imposing 25% tariffs on goods from Canada and Mexico, also on March 4th, Mr Trump is setting light to one of the world’s most integrated supply chains. Although he belatedly delayed duties on cars by one month, plenty of other industries will suffer. He has also raised tariffs on China and has threatened the European Union, Japan and South Korea. Some of these duties may also be deferred; others may never materialise. Yet in economics as in foreign relations, it is becoming clear that policy is being set on the president’s whim. That will cause lasting damage at home and abroad.
When Mr Trump won the election in November, investors and bosses cheered him on. The s&p 500 rose by nearly 4% in the week after the vote in anticipation of the new president lighting a bonfire of red tape and bringing about generous tax cuts. His protectionist and anti-immigration rhetoric, investors hoped, would come to nothing. A stockmarket correction or a return of inflation would surely curb his worst instincts.
Alas, those hopes are going up in smoke. Elon Musk’s doge is causing chaos and grabbing headlines, but with little sign yet of a deregulatory bonanza. (Mr Trump’s order banning the federal purchase of paper straws will do little for America Inc’s bottom line.) The budget blueprint passed in Congress in February keeps the tax cuts from 2017, in Mr Trump’s first term, but does not expand them—though it does add trillions to the national debt. In the meantime, Mr Trump’s tariff promises would return the average effective duty to levels not seen since the 1940s, when trade volumes were much smaller.
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Just as important, the people around the president also appear to lack influence. Scott Bessent, the treasury secretary, and Howard Lutnick, the commerce secretary, are both financiers, but if they are trying to rein in Mr Trump, they are not doing very well. Instead of being wise counsellors, they come across as stooges, explaining why tariffs are essential and Wall Street doesn’t matter. Few businesspeople want to speak truth to power for fear of drawing Mr Trump’s ire. And so the president and reality seem to be drifting ever further apart.
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