Donald Trump’s economic policy could lead the United States to a dangerous mix of inflation and growth weakness. The parallels to the stagflation of the 1970s are serious.
• Trump’s trade policy endangers global supply chains
• Brakes political uncertainties
• Possible influence on the Fed threatens the stability of the Monetary policy
When high inflation and weak growth paralyzed the global economy in the 1970s, the phenomenon of stagflation was considered an economic nightmare. Decades later, the danger seems to be returning – and this time it is homemade.
Trump’s business course: the dangerous way back to stagflation
Donald Trump’s course in US politics carries enormous risks economically. His “America First” strategy and aggressive trade policy threaten to permanently smash the global supply chains. While, for example, Corona pandemic only temporarily caused a combination of inflation and growth weakness, which passed relatively quickly, Trump’s protectionism could now trigger structural stagflation as in the 1970s or even worse – with long -term, global consequences, as is warned in a contribution to market watch.
Protectionism instead of partnership
Trump’s “America First” approach means: tariffs, sanctions and a targeted retreat from international trade agreements. Under its leadership, the United States has increasingly withdrawn from global supply chains – especially from China. Even working with long-standing partners within North America, for example as part of the USMCA (NAFTA successor), is being tested.
While Trump is convinced of his politics, many see his plan as a step backwards. For decades, efficient global supply chains have contributed to reducing production costs and damping inflation. According to studies, international trade relationships and the associated increases in efficiency have reduced the US inflation by up to 0.5 percentage points annually in the past ten years, according to the article on Marketwatch. With the targeted breakdown of these networks, Trump now risks the opposite: rising prices with simultaneous decline in economic growth. It is also warned that the distrust of distrust of the United States should remain long after Trump’s departure. This time there will be no quick or easy solution, as was the case during Covid-19 when the turbulence had a clear end.
New configuration with risks
Trump always likes to refer to investments in domestic industry as proof of a renaissance of US production. The relocation of manufacturing capacities to the USA – the so -called Reshoring, also new configuration in German – is expensive, lengthy and stressed by uncertainty. New production locations do not arise from now on, and companies are also hesitating with investments if they are confronted with constantly changing trading policy framework.
Instead of a revival of industry, Trump’s intervention therefore threatens an investment backlog. Projects are put on ice or not even initiated. At the same time, the production costs rise due to inefficient national supply chains, which is reflected directly in higher consumer prices.
Attack on the independence of the Fed
Trump’s handling of the Federal Reserve is probably more than questionable. Already during his first term he attacked the US Federal Reserve regularly because he believed that it did not lower interest rates quickly enough. Now he goes even further: Trump recently claimed that he could relieve Fed boss Jerome Powell – a step that would probably be considered unconstitutional and would massively undermine the independence of the central bank.
The political influence on monetary policy would continue to shake confidence in the institutions of the United States and have even more serious consequences. If the FED is forced to do interest against economic reason in order to avoid political pressure, it could no longer perform its most important task – combating inflation. The result: a loss of monetary policy in an already tense economic situation, says Marketwatch.
Global consequences
The economic effects of Trump’s politics are not only limited to the United States. The dismantling of global trade relationships, rising production costs and unstable economic policy framework also affect partner countries. International companies are forced to rethink their strategies, build new supply chains and plan with higher uncertainties. This makes the global economy less efficient and more susceptible to shocks.
Trump’s economic policy vision is risky, the market watch article states. Instead of innovation, international cooperation and long -term stability, he relies on short -term nationalism and political demonstration of power. The parallels to the stagflation of the 1970s are alarming – but the difference is the cause: At that time it was external shocks. Rather, it could be self -caused, political wrong decisions that trigger a new global crisis.
Editor finance.net