What Will Trump’s Economic Plan Mean for American Wallets?

CHRISTIANE AMANPOUR, CHIEF INTERNATIONAL ANCHOR: Now, the economy was a key issue for American voters in the election. Trump has promised to make incomes soar and make the cost of living, quote, “come tumbling down.” But, like many economists, Financial Times global business columnist, Rana Foroohar is not convinced, fearing that his plans for deregulation, tax cuts, and tariffs will likely bring an economic downturn. She joins Haris Sreenivasan to discuss the practicalities of the Trump economic agenda.

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HARI SREENIVASAN, CORRESPONDENT: Christiane, thanks. Rana Foroohar, thanks so much for joining us. You wrote in a recent column for an op-ed questioning whether America has become a distressed asset, and if we as a country are a victim of its own success. Explain what you mean by that.

RANA FOROOHAR, GLOBAL BUSINESS COLUMNIST, FINANCIAL TIMES: Yes. Well, you know, my conceit was that we are about to get Trump 2 and one of the many things you can say about Trump is that he’s one of the most transactional presidents, one of the most financialized presidents, one of the most self- interested presidents that we have ever had and we’ll have again. And to me, that sort of dovetails with self-interested markets and self-interested economies. And for the last 40 years or so, with a couple of exceptions, I would put the Biden administration is one of the big exceptions, we’ve had economic policy that’s been run, I think, in a very selfish way. It’s been run on the sort of Chicago school shareholder value model, where as long as share prices are going up and consumer prices are going down, everything’s fine. You have Trump about to inherit an economy that was actually doing very, very well, but for a variety of reasons, one being the felt experience of the inflationary blip that we saw, big blip that we saw during COVID, which is hit a lot of people hard, but also an idea that he was able to present that trickle down works, tax cuts will make the economy grow even faster. We’re taking a strong economy and an economy that was working well, you can like Bidenomics or not like it from a political standpoint, but the evidence was that the U.S. had the best recovery of the post-COVID period. So, it was working. And he’s now going to inflate that economy even more by using debt and deficit to bolster asset prices, to deregulate markets at a time when that’s the last thing we need to be doing for the safety of the economy, and I’m very worried that we’re going to get a big correction. And so, that’s what I mean by the U.S. as a distressed asset. My feeling is that, in some ways, we are politically buying in at the top of the market, and we’re about to see a potential downturn in the next couple of years because some of the policies that this president may implement.

SREENIVASAN: So, before we get kind of further into debt and deficit, I mean, right now, the indicator that people see on TV on a nightly basis is the stock market, right? And in the wake of the election results, we have seen a meteoric rise in stocks and in crypto currencies. Why should we not look at that as the indicator of more stability to come? If — I mean, what you’re saying is true. What we’re seeing is kind of a sugar high.

FOROOHAR: Oh, 100 percent. Well, first of all, markets have very little to do with the real economy. In fact, oftentimes share prices for a specific company will go up if they stop investing in things like research and development, if they lay people off, if they cut costs, if they offshore jobs, that will all make a stock price go up, but it won’t enrich a community, it won’t develop the new, new thing from an innovation standpoint, it won’t create jobs, it won’t create income growth. So, stock markets and the real economy are often inversely correlated. And in fact, over the last 20 or 30 years, as markets have become a more and more important part of how we drive growth, and by that, I just mean asset growth, asset price, inflation of stocks and homes, et cetera, you’ve actually seen slower and more volatile real economic growth. You’ve seen more financial instability. You’ve seen more financial crises. So, in some ways, you could take an X and say, when the stock market’s doing better, you can sometimes argue that the real economy is doing worse. What I will say is this, if you look historically, we are at a period in this country where we are about six years overdue for a slowdown if you discount that quick V shaped downturn in recovery of COVID, which was kind of a one-off event. Recession and recovery cycles tend to happen about every 10 years, it’s been over 16 since we had the last one, the last real one. So, no matter who was in office, we were probably due for some kind of a slowdown. To have a president coming in and trying to bolster the market and create more debt and deficit growth at a time when you already have the potential for a slowdown, that creates a very risky dynamic, that’s the sort of times that you get big stock market corrections, financial crises, and serious downturns.

SREENIVASAN: You know, when you talk about the debt and the deficit, I mean, there are certain policies that the president has put forward, one being a very famous one on tariffs, especially on China. What would the ripple effect be if there was a pronouncement from the administration that we were able to implement large scale tariffs across the board? Because right now the way that he has sold it to his supporters and voters is that this will penalize other countries will make things more expensive for them.

FOROOHAR: Yes. It’s really important to step back and define the way Trump thinks about tariffs and the way the Biden administration thought about them, the way that they can be thought about. Trump is using a very gilded era, gilded age approach to tariffs. It’s about protectionism. It’s about defense. It’s about penalizing others. It’s about using the consumer market as kind of a bargaining chip, which I expect that he will do. We will hear a lot about that. If the country is not doing what he wants, you may see tariffs pulled out as a threat. That’s a very different way of thinking about a tariff than say, a one-off measure to correct against anti-competitive practices on the part of China, let’s say for dumping steel or for dumping electric vehicles below price into a market. That’s a way of protecting U.S. workers. I think what Trump is going to do is not what he says he’s going to do, which is put 60 percent tariffs on China across the board and 20 percent on other allies because that would actually probably crash the U.S. stock market and potentially weaken the dollar. I think that what he’s going to do is use tariffs as a bargaining tool in a very political way that will create a lot of uncertainty in the market and to the extent that they’re used in any broad-based way, because there’s no real industrial strategy to go along with it, you would probably see that as an inflationary tax on the U.S. people.

SREENIVASAN: Speaking of taxes, what if the Trump administration is likely to be successful, at this point, if they have control of Congress, continues to roll back taxes? What does that do to, I guess, just the basic budget math of the country?

FOROOHAR: Well, it’s kind of classic Republican economics, trickledown economics 101, right? I mean, many — Reagan did this in the second term, you know, you roll back taxes, but you don’t cut spending. And so, guess what, debt and deficit goes up. The reason such a problem at the moment is that, for starters, post-COVID, all countries, rich countries in particular, have had rising debt and deficit levels, the U.S. particularly so, this is coming at a time when there’s been somewhat of a pullback from the U.S. dollar. Russia and China are building up gold reserves. China has started its own fiscal stimulus program as a way to try and repatriate capital into its own country. That’s all about trying to pull away from the dollar-based system. Now, I’m not saying that the dollar, as a global reserve, is going to change anytime soon, but I will say that the only thing that allows the U.S. to not be, say, Zimbabwe and, you know, running debt and deficit higher and higher without any real sense of how it’s going to get paid off and have that not spiral into a panic, is the fact that the dollar is the global reserve currency. If that begins to change and you get much higher debt and deficit levels, you could then see borrowers, as they have by the way, in every treasury issuance for the last several years, starting to tiptoe away from U.S. assets, that could then raise borrowing costs, that then begins to really hit, not only trust in the U.S. as a political economy, but it hurts wallets of average people.

SREENIVASAN: Let’s talk a little bit about the underlying basics of the U.S. economy. Right now, if we were to think about the stock market, it is — well, it’s a class of assets that is not equally distributed, right? I mean, the bulk of stocks in America or even real estate in America is owned by an incredibly small group of people. What is the policy of the Trump administration, or at least the promises the Trump administration 2.0 has made, what does it do to kind of the average working class person that might not have access to the stock market versus some billionaire friends who’ve been very active in his campaign?

FOROOHAR: Well, I mean, I think you pointed out a very, very astute thing, which is that about 85 percent of all the asset wealth in the stock market is owned by roughly 10 to 12 percent of the population. So, for those people asset price inflation is great, saying, oh, I’m going to cut corporate taxes. Oh, I’m going to get rid of antitrust policy. And so, potentially there’ll be a mergers boom, and that’ll create a short-term sugar high, maybe a little more stock gains. That’s good if you own a lot of assets, but if you are like the average American, and you get most of your money in a paycheck, that may not necessarily mean good things for you, because what tends to happen during M&A booms, layoffs. Companies merged. They don’t need half of their back office anymore. Those jobs go away. This is happening at a time when A.I. is starting to move higher and higher up the food chain, and you’ve got tech titans like Elon Musk now potentially coming in and, you know, right sizing the government, which will mean more cuts. So, this again creates that dichotomy between the asset owning class and people who really make their money in a paycheck. I will also say that I think some of the policies that Trump has proposed, like no tax on tips, are incredibly cynical because only the lower 5 percent of the socioeconomic ladder even makes money in tips, most of those people make so little money they’re not paying taxes already. It’s not going to make a difference on the federal balance sheet. And what we really need is decent jobs. You know, we need a guaranteed minimum wage. We need things that actually create real security, not a kind of a faux marketing slogan of security.

SREENIVASAN: One of the issues that animated voters so much in America to the polls was immigration. And one of the things that President-Elect Trump told people was that he wants to institute mass deportations. What are the economic consequences? I mean, and right now, he has staffed what his suggested heads for the Department of Homeland Security and the borders czar, and his deputy chief of staff at the White House are all people who really are focused on immigration as their topic. So, if he is able to rollout, even a fraction of the intended plan, what are the economic ripples that we will have to deal with here?

FOROOHAR: Well, let me give you the counterfactual first, which is that the fact that there was higher levels of immigration during the Biden administration, both legal and illegal, frankly, actually contributed to a less to a lessening of labor market inflation. So, what could have been much higher inflation, some of the levels that you saw in continental Europe was less in the U.S. because we have this talent pool, and that’s historically true for the U.S. because we have higher levels of immigration, we have sort of a trend GDP rate of about 3 percent versus, say, roughly 2 percent in Europe. A lot of economists say that’s down to our labor market, which is down to immigration and mobility. If you start to knock those folks out, regardless of where they come from, then you’re going to be creating more tightness in the labor market, and that’s potentially going to be inflationary. So, it’s interesting that some of these swing state voters that, you know, certainly had taken that body blow of higher food and fuel and housing inflation and voted for Trump thinking that he’s going to lower it, they may end up seeing that he raises it.

SREENIVASAN: What do we know about the people who are coming in that will have significant economic influence over the administration, whether it’s the new treasury secretary, whether it’s economic advisers? Because one of the services that Project ’25 did — Project 2025 from the Heritage Foundation did was really just start giving you lists of people that the president could call on, but also everybody else could take a look at those lists and see what was coming.

FOROOHAR: Yes. Well, rather than get into particular individuals, let me just sort of say, I think there’s kind of two blocks. There’s Wall Street and hardcore MAGA. And I think that those two groups are going to be very much in collision about policy decisions. So, if you think about just the folks that would like broad-based tariffs, America first, a much more protectionist view to the economy, well, that requires a weaker dollar. It probably requires a lower stock market. That’s antithetical to the Wall Street crowd, to the hedge funders, to the people that are in this kind of American oligarchic group, I would say. I could go on. I think, you know, immigration, again, maybe the MAGA folks love it. But if it raises inflation, Wall Street doesn’t love it because then that starts to get into is J. Powell going to raise interest rates or he’s going to have to raise interest rates? And then, what’s Trump going to say is the Fed going to get politicized. That’s also bad for markets because, boy, there’s nothing investors — global investors want to see less than a fight between the White House and a Central Bank. I mean, that’s a classic emerging market kind of crisis scenario.

SREENIVASAN: I guess finally, I want to ask, you know, most people look at the country’s finances and try to draw a parallel to their own, for right and for wrong, and say, you know what, here’s how I’m trying to balance my checkbook at home. Where’s the checkbook in the United States? So, some people might be interested in decreasing deficits and so forth. But as leveraged as the United States is and as financialized as politics in America has become, what are some kind of unintended consequences of any kind of exogenous event that might create a quick or maybe a long decline in U.S. stocks? What does that do to our ability to pay for services or how government functions?

FOROOHAR: The great, great question. Well, what I can say is even before Trump was elected, bringing in a budgetary plan that independent experts would say it’s much, much more inflationary than what we’ve seen so far, there was a sense that if we got a big correction in the stock market, say 20 percent, that combined with the level of U.S. debt could bring on a currency crisis, a budgetary crisis, basically, you would have a government that would be unable to pay back creditors without slashing entitlements or military spending. Those two things are going to be very politically unpalatable. And so, does that create a kind of an emerging market style crisis in the U.S.? I mean, this is where you get into, is the U.S. a distressed asset? Is the U.S. itself acting like an emerging market? And I think some of these levels of risk say, yes, we are. Now, what does that mean for your wallet, for the average person? Well, think about your 401(k) and imagine if, as certain experts would say, the market currently is between 20 and 40 percent overvalued. Think about if that correction happened. That’s a lot less money in your retirement. That’s also immediately an international credit event that would probably raise rates in the U.S., which would make paying for everything from homes to cars to any kind of alone more expensive.

SREENIVASAN: Global business columnist and associate editor for the Financial Times, Rana Foroohar, Thanks so much for joining us.

FOROOHAR: Thank you for having me.