The argument has several components:
- The new tax cuts will kick in;
- The chaotic part of the tariff rollout will end, so a greater degree of certainty will return;
- Foreign investment will increase as a result of the trade deals;
- Interest rates will fall; and
- The worst of the inflationary impacts of the tariffs and deportations have already been experienced. Inflation will cool significantly.
To which I respond as follows:
- Most Americans aren’t getting a tax cut; they are simply avoiding a tax increase. Eliminating taxes on tips and overtime will only help a very limited number of people. The increase in the standard deduction for seniors will have a greater impact, but will be largely offset by higher costs elsewhere.
- Trump and chaos are synonymous, because the whole point of his presidency is to show his opponents he has arbitrary power over them. There will be plenty more whimsical interventions in the economy, and the uncertainty will continue.
- There will be plenty of foot-dragging on the investments that were contemplated by the trade agreements.
- Many of the inflationary impacts of the tariffs haven’t been felt yet. There will be lots of very visible price increases in 2026. As a result, interest rates won’t decline much.
- What if there is an unforeseen external shock? What if crypto crashes, as it often does? What if AI is a bubble? The Trump economy depends on these things not happening. Don’t count on it.