Trump’s economy — Live from New York

Key Concepts

Trump Presidency's Impact: Reshaping of economics and politics, with a focus on trade, immigration, and business intervention.
Tariffs: Increased tariff rates averaging 15%, contributing to inflation and impacting manufacturing.
Immigration Crackdown: Reduction in foreign-born workers, affecting the labor market and potentially growth.
Inflation/Affordability: A significant challenge for the Trump administration, with debates on its causes and potential solutions.
AI and Economic Growth: The role of Artificial Intelligence in driving business investment and consumer sentiment, alongside underlying economic resilience.
K-Shaped Economy: The disparity in economic benefits, with the top 10% of income earners accounting for a significant portion of consumer spending.
Business Interventionism: Trump's "dealmaker" approach with individual companies, leading to increased volatility and a changed lobbying landscape.
Federal Reserve: The potential for political influence and a divided Fed, with implications for interest rates and market stability.
Global Economy: The impact of US trade policies on international partners and the potential long-term consequences for innovation and research.
Political Volatility: The ongoing swing in US politics and its impact on economic uncertainty.

Navigating Trump's World: Live from New York

This episode of Reuters Econ World, recorded live at Reuters Next in New York, features host Carmel Crims in conversation with Sally Busby, Reuters North American editor, and Howard Schneider, Federal Reserve correspondent. The discussion centers on how the Trump presidency is reshaping economics and politics, identifying the winners and losers in this evolving landscape.

Audience Participation: Black Friday Spending

The session began with an interactive quiz to gauge audience sentiment on consumer spending. When asked about Black Friday spending compared to the previous year, the audience response was mixed, with a significant portion shouting "more" and a confused response to "less." This ambiguity was noted as being "on brand" for the current uncertain economic outlook.

Impact of Trump's Trade Policies

Howard Schneider detailed the significant impact of Trump's trade policies, particularly the increase in tariff rates.

Tariff Rates: Averaging around 15%, a substantial increase from the approximately 2% inherited.
Revenue Collection: The US is collecting an estimated $200 billion in tariffs, with about $40 billion per month.
Inflationary Impact: The Federal Reserve estimates that tariffs contribute approximately half a percentage point, or 4/10ths of a percent, to current inflation. The stickiness of this inflation is yet to be determined.
Manufacturing Sector: The sector has experienced a "manufacturing recession," with a loss of 50,000 jobs. The extent to which this is attributable to tariffs versus slower growth or weaker demand is under scrutiny.
Future Forecasts: 2026 forecasts suggest resilient demand despite a bifurcated consumer, but also an inflation risk.
Relationship Restructuring: These policies are fundamentally restructuring economic relationships, with the long-term outcomes for reshoring, jobs, and price stability still unfolding.

Immigration Crackdown and the Labor Market

The discussion shifted to the impact of immigration crackdowns on the labor market.

Labor Shortages: Episodic reports of shortages in skilled trades, particularly in construction, are being observed.
Foreign-Born Workers: The foreign-born share of the civilian labor force peaked at nearly 20% under Biden, having been in the mid-50s in the Obama years. It has since leveled out under Trump and then scaled up. This share has now decreased to around 18%.
Worker Displacement: There are an estimated 1.5 million fewer foreign-born workers in the labor force today compared to when Trump took office. The whereabouts of these workers (gone or operating underground) are a subject of determination.
Growth Implications: This reduction in the workforce has implications for growth in an aging country.

Inflation and Affordability Challenges

Sally Busby highlighted inflation and affordability as major challenges for the Trump administration.

Presidential Challenge: Inflation is a significant challenge for any president, including Trump, Biden, and others.
Voter Perception: Despite Trump's claims that inflation is a "Democratic con," real voter perception of affordability issues is a significant factor.
Healthcare Costs: Internal turmoil within the administration regarding healthcare costs and the potential extension of ACA healthcare subsidies, which faced unpopularity with the Republican base.
Tariff Contradiction: The administration's stance that tariffs are not causing inflation is contradicted by the rollback of specific tariffs on food items to mitigate price increases.
Economic Messaging: Trump is expected to aggressively promote the narrative that the economy is performing well and affordability is not an issue, likely referencing tax cuts.

The Role of AI in the Economy

The conversation explored the influence of Artificial Intelligence (AI) on the current economic landscape.

Stock Market and Consumer Sentiment: AI's impact is visible in the stock market, which influences consumer sentiment.
Business Investment: AI has contributed to a tremendous run-up in capital and business investment, a key driver of GDP growth.
Consumer Resilience: Despite expectations of weakening consumer spending, retail sales continue to grow.
Household Balance Sheets: The latest Fed report indicates generally healthy household balance sheets, with only modest stress and no systemic issues like widespread defaults on subprime car loans.
K-Shaped Economy: The disparity in economic benefits is acknowledged, with the top 10% of income earners accounting for nearly 50% of consumer spending. The weakness in the lower segment of this "K" is a point of discussion regarding its potential to impact the broader economy.
Recession Odds: Recession odds are not significantly out of line with historical norms.
Political Implications: The economic narrative is crucial for Trump, as he attracted lower-middle-income voters in his previous election by emphasizing his economic stewardship. Affordability issues present a vulnerability, even if the broader economy appears stable.
Labor Market and AI: Potential labor market implications of AI are being considered, with some observing early signs of difficulty for college graduates and potential AI-driven layoffs. The pace of this transition and the possibility of planning for it are key questions.

Quiz: The Penguin Tariff

A humorous quiz question was posed about Trump's "liberation day tariffs" announced in April, specifically a 10% tariff on a frozen island in the Antarctic inhabited by penguins. The audience correctly identified the islands as the McDonald Islands.

Big Business and Interventionism

The discussion turned to the impact on big business and Trump's interventionist approach.

Navigating Trump's World: Large corporations are seen as adept at navigating this environment through investments, flattery, and political donations.
Interventionist Approach: Trump's "dealmaker" persona extends to individual companies, leading to increased volatility. Companies are strategizing on how to engage with the administration, whether to keep a low profile or actively seek deals.
Shifting Lobbying Landscape: The nature of lobbying has changed significantly, with a greater emphasis on direct, personal engagement with Trump and his inner circle. CEOs may now need to act as primary lobbyists.
Administration's Energy: The administration's high energy level, emanating from Trump, is described as extraordinary and historic.
EV Tax Credits: The use of EV tax credits as a tool to steer capital was raised as an example of government intervention.
Distortive Problem: The hands-on approach, while appealing to some who like the idea of a president actively solving problems, can be distortive. The absence of traditional inter-agency processes means decisions may lack the benefit of diverse expert input.
Volatility and Uncertainty: The decision-making process within the administration is perceived as more uncertain and volatile compared to previous administrations, where the key decision-makers were more clearly identifiable. This volatility poses a significant risk.

The Federal Reserve and Political Influence

Howard Schneider addressed the Federal Reserve's position amidst political pressures.

Fed's Independence: The Fed is not seen as being "hands-on" in a political sense, though economic conditions and institutional threats are of interest.
Potential Threats: Concerns exist about potential political interference, such as the White House making a play to fire Reserve Bank presidents, though no signs of this have emerged yet.
Succession and Rates: The potential appointment of Kevin Hassett as the next Fed chair is discussed, with the working assumption that this would bias the curve lower. However, consensus among the 12 voting members is crucial, and policy deviating too far from economic realities could trigger market reactions.
Market Discipline: Markets are expected to impose discipline on the Fed, preventing it from making drastic policy decisions without a crisis.
Divided Fed: The prospect of a divided Fed, with potential pushback from Reserve Bank presidents, is seen as a source of volatility and a form of discipline. The presence of three Biden appointees on the board adds another layer to this dynamic.
Jerome Powell's Future: The possibility of Jerome Powell remaining as a governor after his term as chair expires is discussed. His institutionalist perspective and bipartisan appointments suggest he might stay if he perceives a threat to the Fed's independence and operational integrity.

Quiz: Tech Boss Gift

Another quiz question asked about a US tech boss gifting Trump a plaque with a 24-karat gold base. The audience correctly identified Tim Cook of Apple.

Global Economy and US-China Tensions

The discussion moved to the global economy and the winners and losers of the US-China trade war.

US-China Tensions: It is too early to definitively declare winners and losers in the ongoing US-China tensions, with the current situation being described as "year zero."
Innovation and Research: A concern is raised that the current path might lead to a decline in US innovation, science, and research, potentially impacting its global standing in these fields.
Rule of Law and Executive Power: Concerns about the impact of pullbacks on research and issues related to the rule of law and executive power are seen as having long-term consequences.
Protectionism and Trade: Protectionist trade policies are a significant factor, with companies globally hedging their bets and observing the US market's trajectory.
Breaking Precedent and Norms: The administration's breaking of precedent and norms across various areas raises questions about unintended long-term consequences.
Political Volatility: The inherent volatility in US politics is a key factor, with the potential for swings in political fortunes.
Long-Term Uncertainty: High long-term uncertainty is present in the United States.

Key Indicators for 2026

Looking ahead to 2026, several key indicators were identified:

Supreme Court Ruling on Lisa Cook: The outcome of the Supreme Court case concerning Lisa Cook and the Fed is considered critically important.
Tariffs Ruling: A potential tariffs ruling could occur late in the year or early next year.
Epstein Case: The ongoing developments in the Epstein case and its potential to remain an issue.
Economic Performance: The state of the economy and the reactions of both Democrats and Trump to affordability issues.
Midterm Elections: The outcome of the midterm elections.
Unemployment Rate: A simple but crucial indicator, with particular attention to spreads within the rate, such as the rise in Black unemployment. A sustained unemployment rate edging towards five and above is seen as a potential problem for the incumbent administration.
Job Displacement and Hiring: The impact of AI investments on job displacement and hiring rates.
President's Focus: The balance between the president's focus on foreign entanglements and domestic issues is a critical factor for his presidency. The aggressiveness towards Latin America has been surprising, and the risk of distraction from core domestic responsibilities is noted.

Conclusion

The live recording of Reuters Econ World provided a comprehensive overview of the economic and political landscape shaped by the Trump presidency. Key takeaways include the significant impact of trade policies on inflation and manufacturing, the labor market consequences of immigration crackdowns, and the ongoing challenge of affordability for consumers. The discussion also highlighted the growing influence of AI, the complexities of big business engagement with an interventionist administration, and the potential for political influence on the Federal Reserve. The long-term implications of breaking norms and the inherent volatility in US politics contribute to a high degree of uncertainty, with specific economic and political indicators to watch in the coming years.