Marketplace - The economy Trump will inherit

Episode Date: November 7, 2024

What will happen to the economy during Trump’s second stint in the White House? We don’t know for sure. But his planned immigration crackdown could cut into gross domestic product and raise prices, and his promised high tariffs are likely to do the same. Plus: Stocks jumped after the election was called, Biden will leave behind a vigorous economy and firms seeking skilled labor are gonna need to educate new workers.

It was indeed a change election. The economic changes to come ahead on the program today from American public media. This is Marketplace. In Los Angeles, I'm Kyle Rizdall. It is Wednesday today, November the 6th. Good as always to have you along, everybody. The list of things that are going to change in this economy under President-elect Trump is a long one.

We are going to spend the program today talking about them. The first started happening even before the election was called in the wee small hours of this morning. Markets started noticing and money started moving, and it kept happening throughout the day. The major indices up 2.5% or more across the board, bond yields spiking. The change at hand here is certainty,

or perhaps the absence of uncertainty now that we know who has won. With the obligatory caveat that the stock market is not the economy, we'll talk about the actual economy in just a minute, Marketplace's Sabri Benishwar gets us going. The stock market is up for a pretty simple reason. One of the main proposals that Donald Trump made

while on the campaign trail was that he was gonna cut the corporate income tax rate. David Kelly is chief global strategist for JPMorgan Asset Management. Business tax cuts are good for earnings and stocks. Then there is the VIX. That is a measure of market volatility and or fear that was down more than 20 percent by early this morning. There was a fear of instability. Rafael Duguay is an assistant professor at the Yale School

of Management. That we might end up with an ambiguous result and that result might get challenged. We might end up with riots, you name it. And what we're seeing this morning is that the results are quite clear. So fear gone, volatility down. Meanwhile, the bond market had a different fear that has not gone away. Every person who invests in bonds, the first thing they want to talk about is the debt and the deficits. Rick Reeder is CIO of global fixed income at BlackRock. To pay for promised tax cuts, the government may have to borrow trillions from the bond market.

All of that has pushed people to say, gosh, if we're going to issue this much debt in the marketplace, we need to be at a higher yield to absorb it. So bond yields went up proactively. Over in the world of cryptocurrency, there were winners. Bitcoin popped up almost 7 percent even just last night. Trump was very clear on his support for Bitcoin. Hany Rushwan is CEO of 21 shares, which sells crypto exchange traded funds. Trump himself has a lending application called World Liberty Financial that it itself is built on crypto. called World Liberty Financial, that it itself is built on crypto. Over in the loser column is the solar industry.

Solar stocks fell double digits by morning. Michelle Davis is head of solar research at Wood Mackenzie. The new Trump administration does present risks to a lot of the different incentives in the Inflation Reduction Act that would support a lot of these industries. Of course, election uncertainty has now been replaced by policy uncertainty. A lot will depend on how many campaign trail promises make it into reality. In New York, I'm Sabri Benashur for Marketplace. On Wall Street today, I mean, Sabri kind of covered that, right? Still, details when we do the numbers. It's going to take a while to understand exactly how all the change that the president-elect is going to bring to this economy is going to play out.

What we do know though is that Trump will take office in January with an economy that is, to quote Greg Ip of the Wall Street Journal, remarkably strong. So we got Greg on the phone to help understand why that is and what it's going to mean come the change in administrations. Greg, thanks for coming on the program. Thanks for having me. You say in the beginning of this piece that was published, I don't know what, 10 days-ish or so ago, you say more impressive than the economic growth that we're having in this country is its quality. What does that mean?

The United States has grown very rapidly in the last year, certainly much faster than most other major developed countries. And even though it's grown rapidly, this has occurred while inflation has come down and while productivity per worker has gone up. So this tells us that the growth is not coming by straining the economy's capacity, which could lead to inflation. The kind of growth that means the Fed can feel comfortable continuing to lower interest rates, which makes it very unlikely we'll have a recession.

And we are, you say, and we've said before in this program, an outlier internationally, right? Europe and the rest of them are still struggling quite a bit. That's right. If you look at the last year or two, the United States has grown faster than almost all of its peer economies. And when you dig into the numbers, a key reason why is because productivity has been growing faster in the United States, which seems to reflect a few intrinsic endowments that the US has that they do not, like our abundant energy resources and the very strong technology sector, which can be seen in the amazing performance of companies like Nvidia and Apple.

So let's talk nuts and bolts then. What does this mean given the news of the day day or the news of last night, I suppose, what does this mean practically for president elect Trump? Well, I think the first thing it means is that Trump basically inherits a pretty good economy. He kind of has the wind at his back. There's really no reason to think that there's a recession in store in the next year or two. And based on what we know now, inflation is unlikely to be a big problem.

It seems to be on track to decline from here. And that seems to be why financial markets were relatively buoyant coming into the election. Even though, as many analysts and economists have pointed out, the policies of the president-elect do tend to be somewhat inflationary. Yeah, so let's take a look at how we might expect the economic outlook to change under the policies of president-elect do tend to be somewhat inflationary? Yeah, so let's take a look at how we might expect the economic outlook to change under

the policies of President-elect Trump. The two main parts of his platform are higher tariffs and lower taxes. And economists will tell you that higher tariffs, all else equal, will lead to higher inflation, and that tax cuts, all else equal, will lead to more rapid economic growth and larger government deficits. And if you look at how financial markets responded to the news of the election, that's exactly what they're anticipating. But I think it's very important to emphasize that we don't actually know what's going to

happen. Trump himself has been relatively inconsistent in specifying exactly what he plans to do with respect to either tariffs or taxes. And of course, some of these proposals have to go through Congress as well. And we're actually still waiting to find out what the full composition of Congress will be and what its preference will be. We know that presidents are unduly credited and unduly blamed for what happens in an economy. Do you see anything, you know, springboarding off the premise of this piece,

that will change the trajectory of the American economy? I think that even before the election, it was fairly clear that the next few decades or so will be a period where inflation pressures will be more of a problem than they were in the decade before the pandemic. Cast your mind back if you could. Before the pandemic, inflation and interest rates were low around the world, in part because it was the long tail

of the global financial crisis, which had depressed investment and demand. Well, the next 10 years, I think, are gonna be very different. We've put the global financial crisis long behind us. People everywhere are worried about supply chains because of things like pandemics, because of things like pandemics, because of things like climate change, because of things like geopolitical conflict. And so I

think that's an environment where inflation is more likely to be a problem on the upside than the downside. And that would have been true no matter who became president. And I think it basically affects how policies such as tariffs and tax cuts will be received. And I think that is a factor that President-elect Trump and his team also have to deal with. Greg Ip, he's the chief economics commentator at the Wall Street Journal. Greg, thanks a lot for your time. I appreciate it. Thanks for having me. If what's passed is indeed prologue, and if we're to take him at his word, tariffs will

be the key trade policy in his second Trump administration. Last time around, he targeted steel and aluminum, also Chinese imports. This time, he has promised tariffs as high as 20% on everything that comes into this economy, 60% on everything from China. That of course will affect both businesses and consumers in this economy. So we asked Marketplace's Kristin Schwab to look at what tariffs have meant so far for businesses and consumers in this economy. Rick Muscat woke up with tariffs on his mind.

Well, we started that conversation first thing this morning. One he's had on and off since 2016. Muscat is president of footwear brand Deerstags, which makes most of its shoes in China. He says tariffs or not, manufacturing will stay there. It's very costly to move production from one country to another. There's a lot of investment in equipment, the molds, the patterns, the cutting dies. Tariffs are supposed to encourage US companies to diversify their supply chains. Erica York at the Tax Foundation says this did happen in some cases during Trump's last term. – Imports from Taiwan, from Mexico, from the European Union increased.

We also saw some substitution toward domestic suppliers. – American Steel, for instance, got a boost. But tariffs come with a price. Scott Linsacum at the Cato Institute says the 2018 steel tariffs affected makers of beer kegs, cars, and cutlery. Those companies were extremely hard hit because a huge chunk of their costs just suddenly got more expensive. Linsacum says some companies ate those

costs. Many pass them on to consumers. That's what Muscat at Deerstag says he'll do. Trump's proposed 60% tariff would add something like 25 bucks onto the sticker price of his shoes. There is one other option. Michael Muscat If I don't pass the costs on ultimately to the consumer, then I have to reduce my cost of doing business so that I could stay in business. He says that would mean cutting staff. I'm Kristin Schwab for Marketplace. Coming up. If you remove migrants from a local economy, you're going to raise prices.

So what does that mean now? First, though, let's do the numbers. Dow Industrial's up 1508 points today, 3.6% percent, 43,729. The Nasdaq ascended 544 points, 3% 18,983. The S&P 500 up 146, that's points. Two and a half is the percent. 59 and 29.

Prediction markets where people place bets on the outcome of, you know, say a presidential election. They claimed victory along with the president-elect today. They say they predicted the win more accurately than traditional polling. So among those operating prediction markets, Interactive Brokers, Incorporated, rang up 10 and

8 tenths percent. Robinhood soared 19 and 6 tenths percent. Tesla shares climbed 14 and three quarters percent today. No reason for that, I'm sure. Bonds down. Yield on the 10-year T-note. 4.43 percent. You're listening to Marketplace. Hey, everyone. I'm Rima Grace, host of This Is Uncomfortable, a podcast from Marketplace about life and how money messes with it. It's hard to believe, but we are somehow in our 10th season of the show. To celebrate, I sat down with the founding producer and we chatted about everything from the early days of the show and the terrible titles we almost named it to what

we've learned making This Is Uncomfortable. You'll also hear our favorite money tips from expert guests and how the show has helped some listeners make dramatic changes in their lives. You can hear this special episode of This Is Uncomfortable wherever you get your podcasts. This is Marketplace. I'm Kai Rizdal. Lost perhaps in the news of last night and this morning is that today is the first day of the Fed's policy-setting meeting. We will get the interest rate announcement tomorrow.

That as a reminder, interest rates is monetary policy. What the president-elect and Congress do is fiscal policy. Separate, but symbiotic. So to read the tea leaves on what those fiscal changes we're talking about today are going to mean for the Fed, we've gotten Heather Long on the phone. She's a columnist at the Washington Post, also not for nothing, one of our Friday regulars. Hi, Heather. Hi, Kai.

So picking up where I left off with Greg Ip and the president-elect's proposed policies, many of them are in fact inflationary, right? Tariffs, restricting immigration. What do you suppose those inflationary pressures are going to mean for the central bank? It's a really tricky time because as you say, these policies are inflationary, but as Greg Ipp was pointing out, it takes time for them to kick in. Thinking back to the first Trump administration, it took over a year to get those China tariffs in place, for example. So if you're the Fed, you don't want to preemptively start to plan for that right away.

But what we are already seeing market reaction on is a widespread belief that because the economy has been doing really well the last few months, so many of these data points are coming in hot or stronger than expected, it gives the Fed some breathing room to take a pause. It's still widely expected to cut tomorrow on Thursday 25 basis points. It's starting to be a little up in the air, whether they'll cut in December or certainly in early 2025. So it gives them a chance to wait and see how fast the Trump administration will act. Keep going with that for a second.

So the numbers are coming in hot so the Fed could conceivably let the economy run for a little bit. They could cut tomorrow, which seems to be what they're going to do, but then just hold, right? I think so. You've seen the odds of the December rate cut come down a little bit. It's still at about 70%. But remember, that can change very fast.

If Fed Chair Powell has become a dextrous communicator and he could use that press conference tomorrow to sort of start to open the door to, we think we're in a good place. We're in a bit more wait and see, these types of terms that he knows how to use pretty well at this point in the game. Sorry, this is a little sideways, but how many questions do you suppose he's going to get, or the same question posed various different ways, about Fed independence, which we have talked about on this program? It's tricky for him.

Obviously, his tenure ends in May of 2026. President Trump will appoint his successor. And there's not much Powell can do about that. I think he's tried really hard to shore up this institution as much as possible and to protect it from political influence. But it's no longer going to be his game and his his say very soon. So you're right, he'll get a ton of questions tomorrow. He'll do the artful dodge. He's very good at saying, as you know, you've been asking him to, you know, we don't do politics, da da da da da.

But you're right, he's gonna have to take the policies into consideration very soon. Yeah. All right, back to policy stuff. The dollar, so tariffs are going to go up, interest rates here. The Fed's going to lower theirs, but the bond market has some say in that. What's this all going to mean for the dollar? Well, certainly we saw it today. Dollar's looking hot, hot, hot. It's a good time if

you can afford it. It's a book of vacation abroad because the dollar goes a long way. But realistically, with the dollar rising the euro falling the Mexican peso really sold off in the last 24 hours the yen This is not gonna help that inflationary situation You know It's kind of gonna make it more difficult to sell us products abroad and revive us Manufacturing and in the ways that we want to and Trump has pledged to do. So it's a bit of a question mark. It's interesting Trump campaigned on lowering the value of the

dollar and we've certainly gone the opposite way. I think the other point that I'll just pick up on that Greg was talking about a little bit, I think some of this movement we're seeing in the dollar and also in the bond yields, and you know, part of it is what we've been talking about expectations of stronger growth, more inflation. But some of it, too, is just uncertainty. Yes, we have certainty now who the president's going to be. But there's really a lot of concern and a lot of confusion and uncertainty about how how many tariffs is he really going to do?

Is it going to be be 10%, 20%? We haven't talked about immigration, another huge factor. Does he truly stop the border on day one? Does he truly attempt to deport people and millions and millions of people? I mean, these are our seismic shifts in the economy that people, it's very hard to model these. Economic unknown unknowns, right?

I mean, that's kind of what they are. And imagine being in the Fed in the middle of all that. Heather Long at the Washington Post. Thanks Heather. Thanks, Guy. Thank you, sir. Heather mentioned immigration and lo and behold here it is. Change is coming to immigration policy as well. Big changes. It is worth a note that immigration, politically sensitive though it may be, is fundamentally labor policy.

The once and future president has promised that he is going to launch, as Heather said, the biggest deportation program this country has ever seen, targeting the estimated 11 million or so unauthorized immigrants in this economy. And Trump advisers have also been drawing up plans to restrict legal immigration as well. Marketplace's Matt Levin explains how that is gonna affect everything from growth to wages to, oh look, inflation. So some caveats here.

Trump has a history of making big promises on immigration that don't actually materialize, that whole build a wall and make Mexico pay for it thing. But if this time around Trump really does ramp up deportations, economist Stan Voiger at the American Enterprise Institute estimates GDP growth would be cut by almost half a percentage point, which is a lot. Not only does the overall workforce shrink, but deported workers can't

contribute to the economy. People don't earn money, they don't produce, they don't generate capital income for others. And so that just has a direct impact on on aggregate GDP. Fewer immigrants in the labor force could also mean higher prices, especially for industries that disproportionately employ undocumented workers. Economist Tarek Hassan at Boston University says part of the reason the Fed was able to tamp down inflation over the past two years was because of an influx of foreign born workers.

If you remove migrants from a local economy, you're going to raise prices in the local economy for everything from produce in the supermarket to Uber rides. Whether removing undocumented immigrants also raises wages for low skilled workers is a matter of economic debate. Most economists left and right of center will tell you the impact is relatively small. But Duncan Braid at the pro-Trump think tank American Compass says less immigration will make some industries more efficient. I think as we've seen in the agricultural sector, sort of the access to an unending stream of low wage workers has sort of hindered the impetus for those firms to automate. According to a recent Gallup poll, about 55% of U.S. adults want less immigration, legal

or illegal. I'm Matt Levin for Marketplace. The simple fact of the matter, keeping with the labor market angle that Matt was just telling us about, the fact of the matter is that there just aren't enough workers in this country to do what has got to get done. That's a challenge for businesses, of course, but it's a problem for the whole economy, as well as Marketplace's Mitchell Hartman explains. I meet Stephen Sassa with construction company Green Gables Design and Restoration,

supervising a small construction crew in downtown Portland, Oregon. Sassa and two journeyman carpenters are rebuilding pandemic-era sidewalk dining patios to meet new city codes. These guys are probably making $40 or $50 an hour. They're also getting full medical benefits. Still, he says, it can be difficult to keep workers in these jobs.

We pretty much just work in the wintertime all winter long. Outside, just dig big holes and get muddy. That kind of works not for everyone. Another reason it's hard to fill these jobs, a shortage of skilled workers, from pipe fitters to project managers. If we haven't been able to train somebody for the position and somebody leaves, I mean that creates a huge problem. At Associated General Contractors of America, VP for Workforce Brian Turmell says while the overall job market may be slowing down,

We haven't heard any of our members telling us that it's getting easier to find qualified workers to hire. Demand for workers is high, with the surge in federal funding for infrastructure, semiconductor and EV production. But Turmell says the sectors also be set by generational deficits. Baby boomers are retiring and there have been decades of educational disinvestment. 80% of what the federal government spends, it spends encouraging and supporting people to get a four-year college degree. And only 20%

goes to what we call career and technical education, workforce training and development. Part of the problem in construction and manufacturing is the image of these careers, says Michael Gritton at workforce development agency, Kentucky Anna Works. They had been laying people off for 20 years in places like Louisville. The parents of those kids were saying, don't go into manufacturing because the jobs aren't going to be steady. There's a lot of uncertainty.

Kentucky On A Work's partners with local employers trying to build a skilled worker pipeline, including GE Appliances, which employs 6,000 workers in Louisville, double the number it had seven years ago. Senior manager Katina Whitlock says the company runs programs in local high schools. We built a mock assembly line where students learn hands-on experiences from our production employees. Seniors can work part-time in the factory, then get a full-time union job after graduation,

starting at $17 an hour. GE also works with Louisville's immigrant communities. There are 80 languages spoken in the plant, from Spanish to Swahili. We had hired multilingual talent recruiters. We have shifts where we actually speak the first language of those employees. The challenge starts with helping young people navigate blue-collar career paths to understand what they pay and how to get started, says management professor Peter Capelli at the Wharton School. I did look into this for one of my kids who was interested in becoming a welder and it

was virtually impossible to help him figure out how to do it. Capelli says many high schools don't offer vocational education anymore. Union apprenticeships are few and far between, and community college programs can be expensive and teach a lot of stuff workers in the skilled trades don't need. I'm Mitchell Hartman for Marketplace. This final note on the way out today, it's an observation really about partisanship in this economy.

We did a whole series of public opinion polls about six or eight years ago, key economic issues people were worried about, their personal financial situations, that kind of thing. One of the questions we asked in 2016 and again in 2018 was whether people trusted government economic data. In 2016, Clinton voters trusted the data basically 2 to 1 over Trump voters. In 2018, that flipped almost on its head. Supporters of by then President Trump decided government data was fine after all. Democratic voters?

Less so. Draw your own conclusions, obviously, but that's not great. Our media production team includes Brian Allison, Jake Cherry, Jessin Duhler, Drew Jostad, Gary O'Keefe, Charlton Thorpe, Juan Colas-Torado, and Becca Weinman. Jeff Peters is the manager of media production. And I'm Kai Rizdal. We will see you tomorrow, everybody. This is APM.

I'm Kyle Rizdal, and on how we survive, we've embedded on the front lines of a fight between the U.S. military and climate change. But that fight's not happening on traditional battlefields. Instead, it's at places like the edge of the Arctic Ocean. Oh my God! It's a little windier out here. Just a little.

On changing terrain. And sea level rises, storms like that will do more and more damage. And in state of the art military facilities where I became a lab rat. We're gonna drop it from 110 degrees Fahrenheit down to 34 degrees Fahrenheit. I can feel my muscles tensing, right?

Discover how the US military might shape our climate future. Listen to How We Survive wherever you get your podcasts.