Trump's Tariffs Spark Economic Uncertainty at Milken Institute Conference
The annual Milken Institute financial conference in Beverly Hills, California, was a hotbed of discussion regarding President Trump's import tariffs. The effects of these tariffs on the US economy have been a topic of debate among economists, investors, and business leaders. While some see the tariffs as a necessary measure to boost domestic production and create jobs, others believe they will lead to higher inflation, lower growth estimates, and an increased likelihood of recession.
Trump's Tariffs: A Reaction to Past Economic Success
Economists reject President Trump's assertion that trade deficits are a "loss" for the US. They argue that trade deficits merely reflect voluntary transactions in which Americans exchange US dollars for foreign goods they want to purchase. Many of those dollars end up back in the US economy through investments in American assets.
Investors, too, do not see the same level of economic decline as Trump does. "I want to make a point about the narrative that we need to embark on these policies because somehow we were losing," said Katie Koch, CEO of TCW Group, at the Milken conference. "We have 5% of world's population, 25% of GDP, and 70% of global stock market capitalization. We were winning, and we have a lot to lose."
The Impact on the Stock Market
Trump won the US presidential election in 2024 largely because of pocketbook issues, not investor concerns. The stock market rose 26% in 2023 and 25% in 2024, providing great returns for Americans lucky enough to own equities. However, three years of elevated inflation ravaged family budgets.
Many communities have never recovered from the loss of manufacturing jobs during the past 40 years, and they voted for Trump's promise to bring back assembly line work. But Trump's tariffs have raised the odds of a new inflation surge, lowered growth estimates, and made a recession more likely.
Treasury Secretary Scott Bessent on Market Resilience
During a May 5 address at the conference, Treasury Secretary Scott Bessent said, "US markets are anti-fragile. Each time the American economy gets knocked down, it gets back up." However, some investors are not so sure. They wonder why knock the US economy down at all? Asked if the American brand has taken a hit, Ron O'Hanley, CEO of State Street Bank, said, "The American brand, whether permanently tarnished, it's definitely tarnished now. Institutions aren't sure how to behave. It becomes really difficult to operate. The real question is whether this is permanent, and that we don’t know yet."
Foreign Investors Wary of US Assets
Some foreign investors say they see more risks to investing in American assets in 2025, after many years in which US markets drew outsized amounts of foreign capital and provided enviable returns.
"Last year, we were talking about US exceptionalism, huge wealth creation in the US," said André Esteves, chairman of Brazilian financial firm BTG Pactual. "The first question that comes up in any analysis outside the US is why, if we have had so much achievement in the last 20 years, why change the model? After these years of amazing success, people notice that eventually they have too much US [investment]."
Uncertainty Remains
The full economic impact of Trump's tariffs is largely up to Trump. He can strike deals with trading partners that reduce or eliminate tariffs and return the US economy more or less to pre-Trump norms. But he has signaled that while there will be some deals, tariffs will be permanently higher as long as he's in charge.
Plenty of people remember the good times before tariffs and will hold Trump to that standard. The question now is whether Trump's tariffs and his war on imports will knock the US economy down a rung, making good blue-collar jobs more scarce, not less.
Conclusion
The debate over President Trump's import tariffs has left many economists, investors, and business leaders uncertain about the future of the US economy. While some see the tariffs as a necessary measure to boost domestic production and create jobs, others believe they will lead to higher inflation, lower growth estimates, and an increased likelihood of recession.
As the economic impact of Trump's tariffs continues to unfold, one thing is clear: the US economy is at a crossroads. Will the tariffs be a catalyst for growth or a recipe for disaster? Only time will tell.