Trumponomics: Could Trump’s dealmaking damage the economy?
Feb 12, 2025
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Join Randy Kroszner, former member of the President's Council of Economic Advisers and the Board of Governors of the Federal Reserve, as he dives into Trump’s unique economic strategies. They discuss his use of tariffs as negotiation tools and the unpredictability of policy changes. Kroszner examines the implications of government shutdowns on economic stability and reflects on the challenges posed by a strong dollar. The conversation also touches on deregulation and its role in enhancing U.S. competitiveness amidst a complex economic landscape.
The Trump administration's use of tariffs as a negotiation tool risks sparking prolonged trade conflicts that could harm the economy.
Efforts to streamline regulations may lead to meaningful economic impacts, particularly in financial sectors, though skepticism about their efficacy persists.
Deep dives
Impact of Government Actions on Efficiency
The discussion highlights the complex interplay between government inefficiency and proposed reforms within specific agencies. There is a targeted approach where agencies are scrutinized, leading to abrupt shutdown threats, yet these often result in pushback due to essential functions. For instance, while Rubio, in his role at USAID, considered stopping certain operations, he ultimately opted to halt only select functions instead of a complete closure. This showcases a method where dramatic moves are made first, followed by adjustments based on feedback and necessities, reflecting both the chaotic nature and the substantive goals of the current government administration.
Tariffs as Negotiation Tools
Tariffs have been frequently utilized as a negotiation tactic rather than a straightforward economic tool, with the president threatening them to secure desired concessions. Initially imposed tariffs on specific countries, such as Canada and Mexico, were reversed quickly, demonstrating the transactional nature of these threats. The discussion emphasizes President Trump's view of tariffs as a vital method for generating revenue and achieving broader objectives like border security and drug control. This negotiation strategy poses a risk of entering a prolonged trade conflict, especially if other nations respond with retaliatory tariffs that could negatively affect both the U.S. and global economy.
Economic Strategy and Trade-offs
The overarching strategy of the administration aims to boost U.S. growth through various mechanisms, including lower corporate taxes and deregulation. However, achieving these objectives involves trade-offs and may lead to unintended negative consequences, particularly in the labor market due to immigration restrictions. The approach prioritizes creating a robust economic environment that fosters investment and productivity growth but faces scrutiny regarding its cohesion and feasibility. The effectiveness of combined reforms might be questioned over time, as the systemic interplay between tax incentives, deregulation, and actual economic outcomes unfolds.
Deregulation and Its Implications
The recent executive orders mandate that for every new regulation, ten existing ones must be eliminated, a strategy viewed with skepticism regarding its actual effectiveness. Concerns arise that the removals may target less significant regulations, failing to provide meaningful change in streamlining processes for businesses. However, there is potential for substantial impact in areas like financial regulation, where reducing excessive burdens could enhance credit growth and investment. The broader goal focuses on creating a more efficient and responsive regulatory environment, though achieving this amid political and administrative challenges remains to be seen.
The first few weeks of the Trump administration have seen the president demonstrate how he approaches negotiations with threats of tariffs, how he closes down government departments without warning, and how what is stated as policy in the morning can be overturned by the afternoon. What effect could all this have on the US economy? To hear more, join the University of Chicago online at 6pm Central Time on February 17 to hear Randy Kroszner address these issues at a Virtual Harper Lecture entitled, “The Trump Administration and the American Economy.”
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