Opinion
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President Trump's import tariffs have rattled markets, and economists worry they could cause a recession. Import costs are rising, inflation is probably going higher, and some store shelves could be empty by summer.
People who have worked with Trump see method in the madness. At the annual Milken Institute Global Conference in Beverly Hills, Calif., several Trumpworld figures argued that Trump knows what he's doing and will eventually steer the economy to safety.
"We're going to come out of this just fine," said Gary Cohn, who was director of the National Economic Council during Trump's first term and is now vice chair of IBM (IBM). "We've lived through recessions, depressions, COVID, the financial crisis. Every time we thought it was really bad, it got a lot better. This is an unbelievably resilient economy here in the United States."
Read more: The latest news and updates on Trump's tariffs
It's not just blind faith in the US economy. Former House Speaker Kevin McCarthy said he talks with Trump frequently and there's a kind of rational strategy behind Trump's trade war. "He's not a rigid person who will not adapt," McCarthy said. "At the end of the day, he's not going to have the shelves empty. We are in the middle of negotiations. He knows he's got about 60 days to do something."
Sixty days is a rough estimate of when the Trump tariffs will start to have notable and negative effects on the real economy. While new tariffs are in place now, including a 145% tax on Chinese imports, many US businesses stocked up on imports during the first quarter, knowing tariffs were coming. Once those inventories are gone, prices will reflect the added cost of tariffs. The tariff on Chinese imports is so high that few goods are arriving, which means there could be shortages of many products made in China.
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As president, Trump has the authority to remove tariffs as quickly as he imposed them. So, at any point during the negotiations with numerous trade partners that are supposedly underway, Trump could claim that a deal is in place, allowing him to lower or eliminate tariffs. McCarthy seems to think Trump will back down on tariffs one way or another once real damage begins to materialize.
Another concern among the financial titans at the Milken conference is the status of the US dollar, the value of which has fallen by an unusual 8.3% so far this year. One White House economist has called for a deliberate devaluing of the dollar to make US exports cheaper abroad. And during recent weeks, global investors have been selling US assets, an unusual and worrisome sign that American markets may be losing the supremacy they've enjoyed for decades. If these trends continue, it could threaten the dollar's status as the world's reserve currency and the many privileges that accrue to Americans as a result.
