The hard-working staff here at Drezner\u2019s World is fully aware of all the extralegal moves that the Trump White House have made in recent months weeks days that will have serious effects on the U.S. economy \u2014 and, by extension, the global economy. I just haven\u2019t been terribly interested in writing about it. <\/p>\n
In part this is due to the utterly depressing reality <\/a>of the current situation. But it\u2019s mostly because at this point things can only play out in one of two very bad ways \u2014 and both pathways wind up at the same endpoint. <\/p>\n First, let\u2019s consider the ongoing policy fiascoes: <\/p>\n The massive ratcheting up of U.S. tariffs <\/a>will accomplish little beyond harming U.S. businesses<\/a> and U.S. consumers<\/a>. <\/p>\n The slashing of government funding for research and development, combined with the multi-pronged assault on U.S. research universities<\/a>, will harm long-term productivity and threaten U.S. leadership in science and technology.<\/p>\n The One Big Beautiful Bill Act is the macroeconomic equivalent of a hollow point bullet that will bust the U.S. budget deficit wide open<\/a>. <\/p>\n The deployment of National Guard troops into DC<\/a>, along with Trump\u2019s intent to deploy such troops elsewhere, are surefire ways to depress the service sector of major urban economies. <\/p>\n The firing <\/a>of the head of the Bureau of Labor Statistics presages a world<\/a> in which no one will be able to trust the reliability of U.S. economic data. <\/p>\n In the past ten days the Trump administration has doubled down on piss-poor economic policy. Last week the president announced that the federal government was acquiring a ten percent equity stake in Intel<\/a>. The company confirmed the deal<\/a> on its own website, explaining, \u201cThe government\u2019s equity stake will be funded by the remaining $5.7 billion in grants previously awarded, but not yet paid, to Intel under the U.S. CHIPS and Science Act and $3.2 billion awarded to the company as part of the Secure Enclave program.\u201d This comes on the heels of Trump\u2019s other attempts to extort profits from U.S. firms<\/a>, demand \u201cgolden shares<\/a>\u201d from foreign takeovers of U.S., firms, and browbeat companies into firing people<\/a> he doesn\u2019t like and squelching criticism<\/a> he doesn\u2019t want to hear. Little wonder that economic conservatives are disgusted <\/a>and the Financial Times has dubbed Trump the \u201cDirigiste-<\/a>in-Chief.<\/a>\u201d<\/p>\n Meanwhile, Secretary of Commerce Howard Lutnick continues to say extremely stupid things about government control over the U.S. economy. In a CNBC interview he suggested creating a Putin-style national and economic security fund<\/a>. In that same interview he said the government should acquire equity stakes in defense contractors<\/a>, stating, \u201cwhat\u2019s the economics of that? I\u2019m going to leave that to my secretary of Defense and the deputy secretary of Defense. These guys are on it and they\u2019re thinking about it.\u201d To put it gently, Secretary of Defense Pete Hegseth has bankrupted two NGOs already, so I\u2019m not sure he\u2019s the guy you want to be thinking about this question. <\/p>\n And then there is what Lutnick said at yesterday\u2019s cabinet meeting: <\/p>\n<\/p>\n Finally, there is Trump\u2019s assault on the Federal Reserve. In claiming <\/a>to have fired Fed Governor Lisa Cook without any kind of valid procedure \u2014 or evidence<\/a> \u2014 the administration is obviously threatening the independence of the Fed. Cook is not going anywhere<\/a>, so we will have to see how the Supreme Court bends the knee to Trump this time around the judiciary handles this case. Paul Krugman aptly describes the stakes<\/a>: <\/p>\n If Powell caves, or the Supreme Court acts supine again and validates Trump\u2019s illegal declaration, the implications will be profound and disastrous. The United States will be well on its way to becoming Turkey, where an authoritarian ruler imposed his crackpot economics on the central bank, sending inflation soaring to 80 percent.<\/p>\n And the damage will be felt far beyond the Fed. This will mark the destruction of professionalism and independent thinking throughout the federal government.<\/p>\n So what will happen? Look, none of this is rocket science. Any decent social scientist would be able to explain why someone with Trump\u2019s leadership style<\/a> will crash and burn an economy if there are no constraints<\/a> on his power. <\/p>\n The question is what happens now. There are two possible outcomes, neither of them is good, and both of them arrive at the same ending. <\/p>\n The first possible outcome is that Trump triggers an escalating financial crisis. Markets have already reacted<\/a> to Trump\u2019s assault on the Fed by betting on lower short-term interest rates but higher long-term interest rates. The combination of Trump\u2019s misbegotten economic policies will lead to an extremely unpleasant stagflationary cycle. And a lot of people will suffer.<\/p>\n