All things considered, it has only been about 3 months since Trump took office, I feel like there is absolutely no way that this was just a single craze and from here things will even out.
I feel like until 2028 (or maybe 2026?) S&P 500 is going to look like a roller coaster.
What do you think?
The tariffs alone would be enough to cause a recession. It’s not just that they’re large (even 10% is large by modern standards) it’s mostly that they’re so chaotic. I’ve read that most businesses are avoiding hiring, avoiding any expenditures they can, and just waiting to see what happens. Seeing what happens means keeping cash on hand, which means a drop in GDP. The numbers might have been juiced a bit by people making big orders and trying to get them done before the tariffs come into full effect, but once that’s done the pain is going to be much more visible.
In addition to the tariffs, there’s the firing of federal workers. There are about 3 million in the US, and even if only a fraction have been fired so far, I would bet the rest are cutting back on unnecessary expenses and building up a cash reserve in case they get canned. This will ripple through the economy too.
And then there’s the ICE stuff. People with green cards getting deported for exercising their first amendment rights, scientists being refused entry for a post they made on social media in their home countries, Canadian, German and British people being thrown in an ICE detention facility because of a minor paperwork mix-up. This is going to make tourists and business visitors much less willing to take a chance and visit the US, but this won’t hit until later. Big tourist season is the summer, and so the lack of business won’t show up yet. And some conferences were too close to cancel, but conferences for later in the year might be moved or cancelled.
And there’s the invasion threats against Canada and Greenland, and the tariff wars against Canada and Mexico, and the refusal to help Ukraine defend itself against Russia. The biggest visitors to the US were Canadians, Mexicans and Europeans, and all of them are going to be avoiding the country now. And, not just avoiding the country. People are trying to avoid buying US goods and services.
In addition, there are treasuries. Many are held by Japan and China. Even just acting purely rationally, they see the chaos in the US and know the US might not be able to pay its bills, or it might choose not to pay them. The risk has gone up. If they aren’t being purely rational and self-interested, they also know that they can hurt the US by dumping treasuries, so they’re doing that.
And then there are the scientists leaving the US, or choosing not to come. And there are potential international students who see how risky it is for anybody who isn’t white, male and christian. This sort of thing might take decades, but it’s going to hurt the US the most. So many of the world’s most talented people have come to the US and started businesses, but that is definitely going to slow down now.
Even if Trump were impeached and removed, and all his changes were undone with apologies, there has been some permanent damage done to the US by the MAGA majority. But, since it is a majority, since the MAGAs control the supreme court, the senate, the house and the presidency, there’s going to be a lot more damage done before there’s even a hint of a stabilization, let alone a recovery.
I think any rational investor is going to get their money out of the US, and the slight recovery the S&P 500 has seen in the last week is going to be dwarfed by the crash over the next few years.
I was so focused on the tarrifs this week that I forgot about the actual fucking threats of war against close allies 🤦
The close allies didn’t forget, trust me.
I agree with most of this. However I think there are additional elements that make prediction challenging.
First, if the US undergoes any kind of revolution in the next five years, the cultural effects you mentioned could by overwritten by more recent events. I realize this sounds improbable, but the transition from the New Deal era to global neolibralism was a revolution. “The Reagan Revolution” was an actual economic and social revolution. And we’re overdue for another.
Second, both the markets and the real economy were in an unsustainable condition before Trump. The pursuit of endless growth, the disruption of climate breakdown, the end of the US’ monopolar hegemony, and the return of extreme wealth inequality in the US made the status quo impossible to simply maintain. Big changes were coming even without Trump.
I maintain some optimism. I think anti trust regulation, climate-based financial regulation, and an embrace of market socialism could render the last three months to be the last gasps of the old order instead of another point in what has been a decline decades in the making. But it depends what happens next.
Unfortunately, revolutions are frequently bloody. I think Europe’s more gradual change post WWII has meant the future is arriving more smoothly there, with less disruption.
I suspect that if the US survives, people will look at 1950-2025 as a kind of golden age, despite all the societal problems. The US really had things easy. It was virtually the only advanced economy to come out of WWII intact. Every other country had to rebuild. For the first 20ish years, regulations from the Great Depression lingered, so unions were strong and taxes were high. All of that meant that you had families where a plumber could buy a house for a family with 4 kids even if his wife didn’t work.
Since the 70s, a lot of worker protections have vanished. High taxes on the ultra-rich have disappeared. But, the US has still had the benefit of having the Reserve Currency of the world. That has allowed the US to easily run big deficits, which has allowed growth that other countries couldn’t match.
I get the impression that the time of the US dollar being the world’s reserve currency are coming to an end. In addition, US companies and universities have been places that the best and the brightest wanted to go. That also seems to be coming to an end.
So, when the dust settles, if the US does manage to transition to a more socialist country with a better safety net, it’s still going to be rough for people. They’re used to 75 years of having benefits that most countries don’t get. Probably a better social safety net and a greater equality in wealth will make up for that. But, it could be that people who were alive at this time will look back at a time when the US was the hub of the world and miss that.