US Presidential Election: Trump victory will disrupt the global economy, says prominent economist
Nobel laureate and economist Paul Krugman believes that a Trump victory in 2024 could disrupt the US economy and the global order.
In an interview with CNBC-TV18, Krugman said “Trump 2.0” would be far more radical than during his first term. “The first time, he put on a few tariffs and did nothing much else. It was pretty much orthodox Republican policy,” said Krugman. This time, however, the former president has promised more extreme measures, including raising tariffs to their highest levels in 90 years and implementing mass deportation plans, which could eliminate more than 5% of the US workforce. These policies, coupled with Trump’s potential efforts to end the Federal Reserve’s independence, could lead to significant inflationary pressures.
Krugman noted that such drastic policies would be much more inflationary than anything seen under the current administration or the policies likely to be pursued by a potential Kamala Harris presidency. He warned that these disruptions would harm US growth and shake the global economy.
Krugman attributed the narrow gap between Kamala Harris and Donald Trump in the polls to the public’s limited engagement with detailed policy proposals. He explained that many voters do not pay close attention to the intricacies of economic plans. “Most people probably have no idea what Trump is proposing on tariffs or what Harris is proposing on changes to Medicare,” he said.
Krugman highlighted that the memory of economic conditions in 2019, coupled with recent price increases, might contribute to the close race. He argued that if people were fully informed on the contrasting policy agendas, the gap would likely be wider in favour of Harris. However, daily challenges like raising children often prevent voters from diving deep into economic specifics.
Krugman expressed satisfaction with the current state of the US economy, attributing much of its resilience to the Biden administration’s economic policies. He noted that inflation is back to target levels, employment is strong, and there is no immediate sign of recession. If Harris were to win the presidency, Krugman believes her focus should be on strengthening the social safety net, particularly in areas where it remains inadequate. “More aid for children, more aid for child care, and a recent proposal for home care for seniors” are some of the priorities Krugman expects Harris to pursue. While these initiatives are crucial for millions of Americans, Krugman doesn’t see them leading to any major shifts in the overall direction of the US economy.
Looking to the future, Krugman acknowledged the uncertainties surrounding the US economy despite its current strength. While inflation seems to be under control and interest rates are high, Krugman admitted feeling uneasy. He suggested that the US economy could experience a “Wile E Coyote moment,” where everything appears stable until an unseen threat—such as a sudden economic slowdown—emerges.
Regarding the Federal Reserve’s recent rate cut in September, Krugman predicted that more cuts would follow, but at a slower pace. “Probably a series of 25 basis point cuts, maybe an occasional skipped cut, depending upon how the economy is doing,” he forecasted. While the Fed’s aggressive rate hikes may have successfully curbed inflation, Krugman emphasised the need for cautious monitoring to avoid unforeseen downturns.
Excerpt from the interview, lightly edited for style.
Q: You have recently written that Donald Trump’s economic policies and policies towards tariffs may lead to higher inflation. How do you think a Trump presidency would impact the US economy?
Krugman: Trump 2.0 is very different from Trump 1.0. The first time he put on a few tariffs and did nothing much else. It was pretty much orthodox Republican policy.
This time, he is pretty credibly promising to do really radical stuff. Tariffs at their highest level in 90 years, mass deportation – something like more than 5% of the US workforce, ending Federal Reserve’s independence. So a Trump victory would probably mean much more inflationary policies than the policies we’ve seen or the policies that Harris has followed. Probably a severe hit to US economic growth and definitely a lot of disruption of the global economy.
Q: When you look at a Kamala Harris presidency, why do you think currently the gap between Kamala Harris and Donald Trump is really narrow? If you go down to some of the swing states, she just has a two or three-point lead as a maximum. Why do you think Donald Trump still continues to have that edge in the US election?
Krugman: Polling has become very difficult. So, I’m not sure that we even know whether the polls are right. The polls have been wrong substantially, and that happens, but there may be particular problems with that now. So, is it really that tight, we don’t know that.
But also, most people don’t pay real close attention to policy proposals. Most people probably have no idea what Trump is proposing on tariffs. They have no idea what Harris is proposing on changes to Medicare. They have noticed that things are more expensive than they were a few years ago. They may not be fully aware that that was a one-time jump in prices and that inflation is back to normal levels now. They kind of remember that things felt pretty good in 2019. I think if people really sat down with the policy proposals, it wouldn’t be close. But people have lives to live and children to raise, so they don’t know.
Q: You have recently said that the economic policies of Joe Biden have really worked, and you’ve been really happy with the recent numbers coming out of the US economy. If Kamala Harris were to win, what do you think is the number one task that she would have in hand as far as the US economy goes?
Krugman: The US economy, in aggregate, is doing pretty well. We’re basically back at target inflation. We have more or less full employment, no hint really of a recession. Recessions can always happen, but there’s not one visible in the data right now. Mostly, her priorities, I think, would be for the places that the US social safety net doesn’t reach. So, more aid for children, more aid for child care, and a recent proposal, more aid for home care for seniors.
It’s good stuff to make a difference in the lives of millions of people, but probably not any fundamental course correction.
Q: If I were to ask you about the number one challenge for the US economy in the coming months, what would that be?
Krugman: Inflation does look beaten. We have had this period of extremely high interest rates, which kind of miraculously have not produced a sharp slowdown, and we’re still waiting. Is there another shoe waiting to drop? So, at this point, the high-frequency data, the stuff that might give you an early warning, is all over the place. You can believe whatever you want to believe. But I am nervous that we might have a Wile E. Coyote moment when you walk off the cliff, so there might still be something waiting to happen. But that’s mostly it. By the standard metrics, the US economy looks just fine right now.
Q: Looking at the Fed decision recently, the US Fed had cut rates by 50 basis points in September, what is your expectation on the pace of cuts going forward?
Krugman: My guess is that they will not stop cutting rates. They raised rates to fight a war on inflation, and they won the war. And that means that normalisation is the policy of choice, but probably smaller cuts unless we see some serious signs of an economic slowdown. So probably a series of 25 basis point cuts, maybe an occasional skipped cut, depending upon how the economy is doing. I think they needed to send a signal that we think that we won this fight on inflation, and we are watchful about a slowdown. But I don’t see anything out there that would lead to more jumbo cuts.
Watch the accompanying video for the entire conversation.