Add to the combination Trump’s well-known desire for a weaker US greenback, and the present circumstances bear a putting resemblance to these of the late Seventies, when a weak greenback and a weak Fed compounded America’s first outbreak of stagflation. Keep in mind the clueless G William Miller, who was Fed chair on the time? That may be a painful a part of my very own expertise as a Fed staffer that I’d slightly overlook.
INCREASING RISK OF US AND GLOBAL RECESSION
The opposite facet of the stagflationary coin is the rising danger of US and international recession. Once more, this goes again to the rising risk of a pervasive, long-lasting uncertainty shock bearing down on the US and international economies, and the related paralysis of enterprise and client decision-making.
Trump celebrated the imposition of so-called “reciprocal” tariffs on Apr 2 as “Liberation Day”. To me, it was extra like an act of sabotage, triggering retaliation and a possible decline within the international commerce cycle.
If this continues, it will likely be exceedingly tough for the world to sidestep recession.
The end result of Trump’s agenda might be as harmful as that of the early Twentieth-century international commerce warfare that adopted the 1930 Smoot-Hawley Tariff Act, one other protectionist coverage blunder.
With US tariffs now even greater than they had been again then (and, in actual fact, greater than at any level since 1909), it’s price remembering the 65 per cent contraction in international commerce that occurred from 1929 to 1934. Right this moment’s world is likely to be fortunate to get away with stagflation.
Stephen S Roach, a school member at Yale College and former chairman of Morgan Stanley Asia, is the creator of Unbalanced: The Codependency of America and China (Yale College Press, 2014) and Unintended Battle: American, China and the Conflict of False Narratives (Yale College Press, 2022). This commentary first appeared on Venture Syndicate.
