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President-elect Trump addresses the House GOP conference on Nov. 13, 2024, in Washington.
President-elect Trump’s strong stance on tariffs is intensifying discussions about his economic strategy, poised to be a cornerstone of his second term.
Trump is inheriting an economy in a favorable position. Inflation has fallen to 2.6 percent, a significant drop from the 9.1 percent peak in June 2022 under President Biden. The unemployment rate stands at 4.1 percent, and the Federal Reserve has cut interest rates twice in recent months, signaling optimism.
“This is an exceptional economy,” said Mark Zandi, chief economist at Moody’s Analytics. “Growth is strong, jobs are plentiful, and inflation is under control.”
However, Trump’s aggressive tariff proposals have raised concerns among economists and market watchers. This week, Trump announced plans to impose a 25 percent tariff on imports from Canada and Mexico and increase tariffs on Chinese imports by 10 percent. He framed these tariffs as measures to curb illegal immigration and drug trafficking, particularly fentanyl.
While a president has the authority to impose tariffs on national security grounds, the reaction from markets and experts has been wary. Tariffs often reignite inflationary pressures, which could affect a broad spectrum of industries.
Auto manufacturers, heavily reliant on cross-border supply chains, saw stock prices dip sharply following Trump’s announcement. Similarly, the food industry, which imports significant quantities from Canada and Mexico, is likely to face higher costs, impacting consumers.
The economic stakes are high for Trump, who campaigned on addressing inflation and reviving economic stability. Exit polls from the election revealed that 39 percent of voters prioritized the economy as their top issue, with Trump winning those voters by a significant margin over Vice President Kamala Harris.
However, economists warn that renewed inflation could stall the Federal Reserve’s plans to ease interest rates further, prolonging higher costs for loans and mortgages. Federal Reserve Chair Jerome Powell recently noted that while the economy shows no signs of requiring urgent rate cuts, any tariff-induced inflation could complicate future monetary policy decisions.
Trump’s unpredictability adds another layer of complexity. Some allies speculate that the tariff threats may be a negotiating tactic rather than a firm policy. Hedge fund manager Bill Ackman, a Trump supporter, suggested that the president-elect might use tariffs as leverage to achieve foreign policy goals.
This week, Trump claimed that a phone call with Mexican President Claudia Sheinbaum led to an agreement to halt migration through Mexico. However, Sheinbaum’s statements were more measured, emphasizing Mexico’s ongoing strategies rather than committing to Trump’s interpretation.
Markets have responded positively to Trump’s selection of Scott Bessent as Treasury secretary, a conventional choice compared to his more polarizing nominees. However, Trump’s simultaneous tariff announcements unsettled investors, even as the S&P 500 remains up by 5 percent since his election.
While Trump’s proposals for corporate tax cuts and deregulation are expected to boost business confidence, his tariff strategy remains a wildcard. Economists warn that these moves could undermine the economic momentum he stands to inherit.
“Trump’s economic policies could lift growth, but his inclination toward tariffs risks derailing those gains,” Zandi cautioned.
