This Economy Is Too Good for Donald Trump

The plot to kill Goldilocks

Donald Trump says that the U.S. economy is a disaster. And why not? I mean, just look at the facts. Here’s the unemployment rate:

And here’s the Federal Reserve’s preferred measure of inflation:

Wait, you say: That doesn’t look like a disaster. Unemployment and inflation are both low. Indeed, by any normal standard we are very close to a Goldilocks economy, in which everything is more or less just right.

But Trump wants a disaster. He needs a disaster. He’s likely to declare formally that the economy is a disaster, never mind the facts.

The title of this post is a triple entrendre. When I say that the economy is too good for Trump, I’m talking in part about justice: Having spent the past four years trashing President Biden’s economic policies, it seems unfair that he’s inheriting an economy in such good shape.

But I’m also talking about the fact that Trump wants to implement extreme policies and needs to claim that the economy is terrible to justify his actions.

Finally, presidents are often judged not by the state of the economy on their watch, but on whether things got better or worse — unemployment and inflation were much higher when Ronald Reagan declared “morning in America” than they were in November 2024. And because Trump will be starting from Goldilocks, things would be much more likely to get worse than better even if Trump didn’t have terrible policy ideas.

About those bad ideas: If Trump were to ask me what to do about the economy (hahaha), I would say: do as little as possible.

Oh, make a few gestures; stick a new name on largely unchanged policies, the way you did with NAFTA; lie about your predecessor’s economic record; but don’t fix what isn’t broken.

Trump, however, really really wants to impose large taxes on imports, and he probably needs to declare an economic emergency to do so. CNN reports:

President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a large swath of universal tariffs on allies and adversaries, four sources familiar with the matter told CNN, as Trump seeks to reset the global balance of trade in his second term.

The declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, known as “IEEPA,” which unilaterally authorizes a president to manage imports during a national emergency.

Now, Trump can probably declare a national economic emergency even if everything is fine. Who will stop him? Remember, homicides were near a historic low when Trump took office the first time, which didn’t stop him from devoting his inaugural address to “American carnage.” From Jeff Asher:

But declaring an economic emergency amid prosperity would, presumably, cause many people to ask, “What the hell?” So it would come at some political cost.

Why is Trump so determined to go all in on tariffs? That CNN report says that he wants to “reset the global balance of trade,” which is a moderate case of sanewashing, making it sound as if his critiques of the current state of affairs make sense.

Consider U.S. trade with Canada. Trump keeps insisting that because Canada runs a bilateral surplus — they sell more to us than we sell to them — we’re “subsidizing” their economy. Bloomberg had a nice chart showing what’s really going on:

It turns out that Canada actually runs a trade deficit with the United States in everything except oil and gas. So one way to think about the two nations’ economic interaction is that they send us oil, and we send them IOUs in return. Under what mental contortions does this constitute a U.S. subsidy to Canada’s economy?

Still, Trump says he plans to go through with high tariffs and mass deportations. If he does, inflation will spike; Goldilocks will be badly injured if not killed.

Will this cause a major political backlash? God knows.

Clearly, many people voted for Trump because they believed his promise that he would not just reduce inflation, but actually bring grocery prices down. Yet doing so, as one analyst put it soon after the election, would be “very hard.” That analyst, of course, was Trump himself.

The question is, have Trump supporters gotten the memo? The latest Michigan Consumer Survey shows a spectacular partisan divergence in inflation expectations:

Democrats, like most economists, expect Trump’s policies to cause higher inflation. Republicans, however, appear to believe that he can wave a magic wand and make prices fall.

What will happen when prices keep rising? Will these voters feel betrayed? Or will Trump, Elon Musk and company manage to do what they’re trying to do with the fires in Los Angeles, and blame wokeness? (Or will they, as I suggested the other day, just fudge the numbers?)

I remain highly uncertain both about what Trump will do and about how it will be received. But I would argue that the fact that he inherits an economy in such good shape is actually a problem for his agenda.

MUSICAL CODA

My forecast: