It’s Beginning to Smell a Lot Like Stagflation
When Donald Trump announced his Liberation Day tariffs on April 2, many economists declared that the economy was headed for stagflation, with a number outright predicting recession. Looking back over my own posts, I was a bit more cautious. Specifically, I had and have no doubts about the flation aspect, but was less sure about the stag.
At this point, however, the data really are looking increasingly stagflationary. And I thought it might be useful to talk about why the lights on the economic dashboard are flashing yellow or red.
The starting point for any discussion is the fact that Trump is pursuing really extreme policies on both trade and immigration. He has completely reversed 90 years of gradual trade liberalization, bringing us right back to Smoot-Hawley tariff rates (and imports as a percentage of GDP are three times what they were in 1930, so these tariffs matter a lot more):
On immigration, ICE has just gotten going on mass arrests and deportations, but the number of foreign-born workers in the United States is already shrinking after years of rapid growth:
