
Why China Probably Isn't Panicking Over Trump
Though this argument has been made here and there since the US president-elect's win on November 5, the picture the International Monetary Fund is painting about the next four years is worth considering.
On the eve of Trump's January 20 inauguration, the IMF's chief economist, Pierre-Olivier Gourinchas, counts the ways tariffs, trade curbs and blunt force responses to waning US competitiveness could backfire on the biggest economy.
The bottom line: the next wave of tariffs Trump 2.0 threatens could make trade dislocations worse, reduce investment, distort market pricing mechanics, disrupt supply chains and spook global markets in chaotic and unproductive ways.
The tariffs alone, Gourinchas worries,“are likely to push inflation higher in the near term.”
Huge tax cuts in an economy at or near full employment could hasten America's path toward overheating. Trump's mass deportation hopes would cause even greater disruptions for restaurants, construction and myriad other businesses already short of workers. Labor costs could surge as a result, intensifying inflation pressures.
Even Trump's promised deregulatory Big Bang might not go as Treasury Secretary-nominee Scott Bessent argues. Yes, the US might“boost potential growth in the medium term if they remove red tape and stimulate innovation,” Gourinchas says.
But, he adds,“excessive deregulation could also weaken financial safeguards and increase financial vulnerabilities, putting the US economy on a dangerous boom-bust path.”
When“we look at the risk for the US, we see an upside risk on inflation,” Gourinchas notes.
As Gourinchas' institution points out, Trump is fortunate to inherit a US economy that's recovered from the Covid-19 crisis better than peers. The IMF expects 2.7% US growth in 2025, faster than the 2.2% it predicted back in October.
That hasn't stopped Trump from signaling a fresh stimulus boom to come. On top of making permanent the Republican Party's US$1.7 trillion 2017 tax cut, Trump promises additional corporate tax cuts . Trump also has hinted at reprising his 2017-2021 role as Federal Reserve-basher-in-chief.
Back then, Trump cajoled his handpicked Fed chairman, Jerome Powell, into cutting interest rates at a moment when the buoyant US economy didn't need it. Trump attacked the Fed in speeches, press conferences and on social media. Trump even mulled firing Powell. By 2018, the Fed surprised world markets by suddenly adding liquidity, ending efforts to normalize rates post-Lehman Brothers crisis.

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