Trump didn't take advantage of SCOTUS' 'exit ramp' from tariffs: John Lonski

Key Concepts

• Government Shutdown Impact: Assessment of the economic impact of the partial government shutdown on US GDP.
• Winter Weather Impact: Analysis of the economic consequences of severe winter weather in the US, particularly in the Northeast.
• Sustainable GDP Growth: Discussion of realistic and sustainable rates of economic growth for the US economy.
• Tariff Impact: Examination of the effects of President Trump’s tariffs on American consumers and businesses, including price inflation.
• Goods Price Inflation: Focus on the rise in prices of tangible goods and its connection to tariff policies.

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Economic Impact of Government Shutdown & Winter Weather

The discussion centers on the economic ramifications of the ongoing partial government shutdown and recent severe winter weather. John Lonski, an economist, posits that the current shutdown will have a minimal impact on GDP growth, estimating a reduction of only “a tenth or two-tenths of a percent,” deeming it “safely… ignored.” He emphasizes that the more significant drag on first-quarter growth is attributable to the “horrible winter weather.” Lonski estimates the winter weather will shave approximately “half a percentage point” off GDP growth, potentially reducing a projected 2.5% growth rate to 2%. He stresses the importance of waiting until spring to accurately assess underlying consumer spending rates due to the distorting effects of the weather.

Sustainable Economic Growth Rate

Lonski challenges optimistic projections of 4% or 5% GDP growth, asserting that such rates are unattainable due to “constraints on the labor supply.” He believes a sustainable growth rate for the US economy falls within the range of 2.5% to 3%, stating, “If we can do an underlying rate of growth of 2.5% to 3% I think we’re doing quite well.” This statement directly references the recent GDP growth figure of 1.4%, which fell significantly short of more ambitious forecasts.

The Impact of Trump’s Tariffs

A significant portion of the conversation focuses on President Trump’s tariffs. Lonski characterizes the tariffs as a “losing proposition” for Trump, noting that the Supreme Court provided an “exit ramp” from the policy, which was not utilized. He argues that voters desire “less price inflation,” and that tariffs actively work against this goal, hindering efforts to “make America affordable again.”

He directly addresses a study by a Federal Reserve economist indicating that 90% of tariff costs are passed on to American consumers and businesses. While acknowledging Kevin Hassett, the President’s chief economic advisor, dismissed the study as “faulty,” Lonski affirms that the prices of “tradeable goods” are demonstrably higher due to the tariffs.

Goods Price Inflation & Historical Trends

Lonski highlights a concerning trend of “goods price inflation,” currently at 1.7%. He contrasts this with the pre-COVID period during Trump’s first term, where “goods price deflation” was prevalent, and prices of manufactured goods were “generally flat to somewhat lower.” He suggests that this shift represents a deviation from voter expectations established during the 2016 election. He states, “Prior to COVID, goods price inflation didn’t exist.”

Logical Connections & Overall Assessment

The discussion flows logically from assessing the immediate impacts of the government shutdown and winter weather to a broader analysis of long-term economic growth potential and the consequences of specific policy decisions, namely the imposition of tariffs. The conversation consistently links policy choices (tariffs) to observable economic outcomes (goods price inflation) and consumer experiences.

The overall takeaway is a cautious outlook on economic growth, with a recognition that external factors (weather) and policy decisions (tariffs) can significantly impact the economy. Lonski’s perspective emphasizes the importance of realistic expectations regarding GDP growth and the potential negative consequences of protectionist trade policies.