President Donald Trump isn’t quite yet at the point where he can’t put the economic toothpaste back in the tube, but he’s getting close. |
Think of it more as when you reach that final pocket of air in the tube before it gives way, and the toothpaste comes out.
The question is whether Trumpworld is ready for the worst-case scenario: stagflation. |
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For months, the mantra inside the White House has been a MAGA version of “Keep calm and carry on.” President Donald Trump’s inner circle and more junior aides have embraced the term “No panicans”—specifically around tariffs—to signal there is no room to panic over, and certainly no room for dissent from, the president’s economic policies.
The administration’s areas of focus—deporting immigrants whose labor powers key sectors like agriculture and construction, levying tariffs, and cutting social services among them—have done more than simply increase uncertainty. Hiring and tourism have already slowed dramatically in major US cities from Las Vegas to New York in the first half of the year, and Trump has put almost all the ingredients in place for slow growth amid high unemployment and inflation, the potent combination known as stagflation.
Behind the scenes, as more tariffs begin to kick in and punted deadlines approach—particularly a tariff hike on Chinese goods, now set to jump from 30 percent to 80 percent by November 10—some Republicans in Trumpworld’s orbit are bracing for impact.
They’re not panicking just yet, but there are growing concerns around not only rising prices but also a weakening labor market. It may not get the same traction as the price of eggs did under President Joe Biden, but it has some of my sources growing a little bit anxious about where the economy is heading.
“I’m probably surprised that there has not been more concern,” a Republican strategist and former Trump administration official tells me. “I think the reality is that we’re at that sort of inflection point, where retailers were reluctant to raise prices because they feared retaliation from the administration.”
“Now,” this source continues, “the reality is setting in that these are not transitory. There are going to be economic consequences.”
Yet inside the White House, and especially within the president’s inner circle, the first wave of tariff announcements, rollbacks, rollbacks on the rollbacks, and announcements of new tariff rates has been met with the same refrain: “No panicans.”
When asked if the administration has a plan to deal with a stagflation scenario and how they’re approaching the cooling labor market, the White House used that exact term. “Inflation continuing to remain cool and growth rebounding in Q2 both suggest stagflation is simply the latest buzzword for panican paranoia,” White House deputy press secretary Harrison Fields says in a statement.
Unemployment staying under 5 percent and inflation holding, per the Consumer Price Index, at under 3 percent have encouraged Trump loyalists to keep trusting the plan and claiming that the experts were wrong for doubting them. But warning signs that hiring is coming down and prices are rising are still there, economists tell me, and private trepidation from GOP sources serves as another negative indicator—even if it’s a more vibes-based one. Republicans close to the president may be confident everything will be fine, but just because they keep saying “No panicans” doesn’t mean there’s no reason to panic. (Trump continues to poll much worse on the economy than he did in his first term, with a Reuters/Ipsos poll from August 13 to August 18 showing his handling of it at only 37 percent approval—near the lows Biden reached on the same question.)
If economic trends continue, tariffs—which amount, despite the president’s insistence otherwise, to taxes on US companies and ultimately on US consumers—coupled with rising unemployment could be a ticking time bomb.
“If this experiment fails, it’s gonna fail horribly, and I think we’ll begin to see the impacts of that sooner than later,” says a second Trumpworld strategist. |
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There’s plenty of cope going around in the GOP and the Trump White House.
“I think we’ve shown that the inflation bit has been resolved,” a White House official tells me. “When the private sector is willing to work with us, and is understanding and appreciative of our mandate to reshore manufacturing, we have shown time and time again we are willing to meet with them halfway.”
Could there be more concern about the jobs numbers, particularly given a decline in the labor participation rate and revisions bringing job growth from the hundreds of thousands this spring to the tens of thousands?
“No,” a Republican member of Congress close to the president tells me in a text message when asked if they’re worried about the labor market. “Not at all. Revenue from tariffs have been good. Plus big tax cuts just passed. More to come with potential massive trade deal on 15th.” (August 15th was the day Trump met with Russian president Vladimir Putin in Alaska; no such trade deal materialized.)
Economists I talked to, though, aren’t buying it.
“All signs look pretty pessimistic on the inflation front,” James Angel, a finance professor at Georgetown University, tells me in an email. “You don't have to be a rocket scientist to figure out that tariffs will increase the prices we pay for imported goods. No amount of spin will change that.”
Justin Wolfers, an economist at the University of Michigan, says the labor market is looking grim even before the tariffs have fully kicked in. There’s “no question job growth has slowed,” he says.
Wolfers adds that one of Trumpworld’s biggest justifications for the tariffs not being a big deal for American consumers simply doesn’t hold up. As the first Trumpworld strategist pointed out, some companies—most notably American automakers like General Motors—have shown in their earnings reports that they’re willing to eat the cost of the tariffs at the expense of their own profits.
“That's what you would normally expect to happen in the short run, because businesses don't change their prices minute-by-minute every time the president opens his mouth,” Wolfers says. “Now that the tariffs are set, and they're seeing margin compression, that's the point at which you'd expect businesses to start to think about repricing.”
Wolfers says consumers should expect to feel more pain “in the second half of this year.”
Angel says that even a continuation of the status quo with perpetually delayed tariffs could still have devastating consequences.
“The economic chaos with on-again, off-again tariffs has caused business and consumer expectations to drop,” the Georgetown professor explains. “That in itself is likely to cause a recession.” |
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Trump’s vendetta against Federal Reserve chairman Jerome Powell doesn’t calm my sources’ jitters, as Trump has made clear that he would like Powell’s eventual replacement to cut interest rates, even if doing so conflicts with the Fed’s dual mandate of keeping prices stable and employment full.
It also doesn’t help, sources tell me, that Trump fired the head of the Bureau of Labor Statistics after the most recent job numbers showed significant revisions and a slowdown in hiring over the past several months. (EJ Antoni, Trump’s pick to lead the BLS, has little relevant experience beyond being the Heritage Foundation’s chief economist; as WIRED reported, a now-deleted Twitter account using his name showed a fixation on red-pilled conspiracy theories.)
Another Republican operative in Trumpworld tells me, though, that a more fundamental part of the problem with calibrating around Trump’s economic strategy is the old Teflon Don mentality. He always wriggles his way out of a jam, they say, and it can be hard to believe the laws of political or economic gravity apply to him.
This source also fits a pattern I’ve come across in my years of reporting on Trumpworld: a deep distrust of institutions and experts among the staffer class that predates the Trump era.
“Personally, I’ve always thought the job numbers are super fugazy,” this GOP operative tells me, “and this goes back to 2012 when I was on the Romney campaign.”
For economists like Wolfers, the spin only goes so far. Trump may have found myriad ways to defy the laws of political physics over the years, but the economy doesn’t work that way.
“It turns out, the connection with reality has become such a small part of our policy debates that of course they'll be able to deny [any negative impact],” Wolfers says. “But denying that is absurd on its face … You are already seeing job growth slow. You are already seeing prices rising.” |
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