The Journal. - Trump 2.0: Where Is The Economy Headed?

Episode Date: April 25, 2025

President Trump’s deportations, tariffs, federal layoffs and funding suspensions have generated nonstop headlines and frayed confidence, yet left surprisingly little trace on the economy. Hiring, spending and inflation look a lot like they did under Joe Biden. As Trump’s first 100 days draw to a close, Kate Linebaugh and Molly Ball explore the state of the U.S. economy with Chief Economics Commentator Greg Ip and try to understand what might be coming next.  Further Listening: - Taking Stock of the ‘Sell America’ Trade  - Inside the Harvard vs. Trump Battle  - How Frog Embyros Landed a Scientist in ICE Detention  Sign up for WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Molly. Hey, Kate. How was your break? It was wonderful. And while I love my job, it was great to get away. And while you were away, were you able to get away from all things Trump? Well, pretty much. I mean, interestingly, the vacation I took

for my kids spring break was to Panama, which you may have noticed has been in the news lately. As you might expect from, you know, locals and tour guides and so forth, there were a few references to the fact that this country has has been in the news recently.

Did you go to the Panama Canal? I did. I actually spent my birthday to the Panama Canal? I did. I actually spent my birthday on the Panama Canal on Sunday. And it was really cool. That's like the most Molly Ball thing ever. You chose to spend your birthday on the Panama Canal. So now that we're back, what's on your mind? Well, it does seem like I missed a lot of gyrations in ye old economy.

Like there was a lot of back and forth about the tariffs and the deals and the economic stuff. And the markets. So I'm trying to catch up on where all that stands. All right then. So let's dive in. From the Journal, this is Trump 2.0. I'm Kate Leimbach.

And I'm Molly Ball. It's Friday, April 25th. Coming up on the show, we'll talk about markets, the economy, and of course course some tariffs. Okay, flights on air Canada. How about Prague? Ooh Paris, those gardens. Gardens? Amsterdam, Tulip Festival. I see your festival and raise you a carnival in Venice. Or Bermuda has carnaval. Ooh colorful.

You want colorful. Thailand. Lantern Festival. Boom. Book it. Um, how did we get to Thailand from Prague? Oh, right. Prague.

Oh, boy. Choose from a world of destinations, if you can. Air Canada. Nice travels. So, Molly, Trump won the election in large measure by promising to fix the economy, bringing down inflation, restoring manufacturing. And one of the tools he talked about a lot was tariffs. How is all this going? Well, the tariffs don't seem to be going great in the sense that he keeps going back and

forth on them. And the public is not particularly enthusiastic. Trump's approval rating has dropped, his approval rating on the economy has especially dropped, and the tariffs themselves are extremely unpopular. So it's possible that there is a long-term strategy here that we're just not seeing, but in the moment it doesn't seem to be going great. We really want to take a closer look at what's driving the economy. And to help us do that, we're joined by our colleague, Greg Ip, the Wall Street Journal's chief economics commentator. Hi, Kate.

So Greg, how would you describe how the economy is doing right now? Well, Molly said a moment ago she came back to this kind of maelstrom of markets gyrating up and down. And what I find fascinating is that if you actually were able to ignore the markets, in fact, if you were able to ignore the news and only look at the economy, the economic data, the kind of stuff that we nerds sort of focus on, you know, like the consumer price index and the unemployment report, nothing much is going on. The economy since Trump became president looks a lot like the economy when Biden was still president. Job growth is chugging along, almost no sign of like Elon Musk's Department of Government

efficiency layoffs, certainly no sign of big cuts to federal spending, which is actually up compared to a year ago. In spite of the much Ballyhooed largest deportation in history, we don't see much sign that migrants have disappeared from the labor force. And on the tariffs, this is the most fascinating thing. There's just not much inflation out there. Now there's a great big caveat to that, of course, and that is its early days. But I still think it's intriguing that for all the talk of tariffs, we're not seeing

it in the price data. We're not seeing it in the spending data. So this is definitely a time of frayed nerves, certainly among investors and consumers, but the economy overall kind of looks fine. You hear this a lot from the White House, right? They're saying that Wall Street is not the economy, Wall Street isn't Main Street. So why is Wall Street freaking out so much? Is it just the expectation that eventually there will be an economic effect to all of these things or is it actually that for all the sort of noise, the sound and fury coming out of the administration, they just

haven't actually done very much? Well, if you actually take the administration at its word, if you take them both seriously and literally, then there is a very good reason to be worried because the scale of the tariffs, number one, the dollar value alone would amount to one of the largest tax increases relative to the size of the economy since the 1960s. So that would definitely weaken the economy. Secondly, the impulse to prices would deliver a very strong boost to inflation. And finally, it would require a highly disruptive reorganization of supply chains, which would be costly and take years

to work through. But of course, the big question, Mark, is will the president actually follow through on this? And what we have seen is an interesting kind of self-correcting mechanism. The president threatens very aggressive action. The markets sell off. The president walks it back. And now we have a pause on tariffs.

We have even talk of the tariffs on China being reduced and so forth. And so the markets improve. So speaking of tariffs on Chinese imports, which have been set at 145%, the Wall Street Journal had some exclusive reporting this week that the White House is considering slashing those tariffs in half to around 50% in a bid to de-escalate the trade war. What could that mean? It would still be a very big hit to the economy if we had a lasting 50% tariff on China. I mean, our imports from China,

a lot of them cannot be easily replaced by goods from other countries. Even if we were to like move that production to other countries or to the United States, that's a multi-year process. So it's almost impossible to avoid some impact on prices and consumer spending. But again, we're not seeing the impact yet.

And I think there might be a couple of reasons for it. First of all, a lot of the importers that were most exposed to these kinds of tariffs, they kind of saw the writing on the wall and there was kind of a rush to import goods in the months leading up to the president's inauguration. And so that stuff is sitting in inventory waiting to be sold. The effect of tariffs may not show up until that inventory has been run down somewhat. And we've seen some companies actually rather than raise prices step back and wait a little bit just to see what happens. One area where, again this isn't I guess a concrete statistic, it's more vibes, but one area where we do seem to see a change is in consumer confidence, correct?

I feel like even though all of these indicators appear stable, the vibes of the economy are bad. Is that what that means? And what are their consequences to that? Or is it just a vibe? You know, Molly, I feel like we could have had exactly the same conversation a year ago when the economic numbers were looking pretty good. The inflation rate was coming down a lot and people's confidence was terrible. People were really upset, right?

That's right. It's very much like the Biden economy where the White House was constantly complaining that people didn't appreciate how good it really was on paper. And we talked endlessly about the disconnect, the disconnect between the good economic data and the poor vibes. And I kind of feel like the disconnect has now come for Donald Trump. And it just, I think, just demonstrates that there's a profound dissatisfaction in the economy, which you can't pin on any particular president or any particular policy. So the vibes in part are shaped, I think, by an underlying level of dissatisfaction that predates this administration.

I think it also reflects the fact that the news is full of all the talk of what's going to be happening with tariffs and so forth. And we're rational people, right? So if every time you open your social media feed or you listen to the news, it's talk about price increases are coming, price increases are coming. Of course, that's going to affect your mood and your vibes. But I think the key question we need to ask ourselves is at what point do these concerns about the future actually reflect behavior in the present? And we just haven't seen that happen yet. So until that does, I'm going to continue to sort of treat this

as kind of like disconnect 2.0. Another big topic in the economy has been interest rates. The Fed chair, Jerome Powell. Trump has talked about replacing him. What is going on there? Well, the president obviously is upset that the markets don't like his tariff plan and that they've responded by driving down stock prices. And so the president says, hey, I've got this great plan. It's important for the economy, but I could use a little help here. And what does he turn to? Well, he turns

to the Federal Reserve. And those of us who covered his first term are familiar with this script because in 2018 and 2019, when the Fed was raising interest rates from the very low zero level, the president was attacking the Fed then, including Jerome Powell, the chairman, who Trump himself, by the way, appointed. I think what gave it a different flavor this time, Kate, was that beneath that complaint was the threat that if Powell did not lower interest rates, Trump would fire him. And this is a whole new level of uncertainty and tumult that the market is just not used to. And it just kind of like, you know, adds to the overall feel of the institutional sinews

of the economy becoming increasingly frayed and less dependable. And that's just not a big confidence building measure. And you see these headlines of sell America and of the declining dollar, of the stock market going down, like the Dow is headed to have its worst April since 1932. What role have markets played in shaping Trump's policies? Well, as my colleagues reported this week, we think that the market's role is quite important. The president does seem to be a little less sensitive to the stock market than he was in his first term, but he is still sensitive.

And when the stock market and in particular the bond market, when they startediveness of this tariff action, that provided them with talking points and ammunition to sort of like suggest to the president, hey, Mr. President, maybe it's time to walk this back. There might be a better way. This has all been very confusing, I feel like, to people on Wall Street because, you know, the IMF meetings are this week. There's a lot of bankers and financial officials from all over the world in town. And they seem very confused that the administration, frankly, is not more sensitive to the markets. I think there was an expectation that this president viewed the stock market as almost

like an approval rating ticker and would immediately course correct if he saw that there was a negative impact. But instead he's been sort of intermittently sensitive to market gyrations while claiming that he's not going to be sort of bullied. How much is that uncertainty making people nervous, I guess? Well, you know, it's kind of like almost a cliche now, but uncertainty is like bad for growth, right? I mean, businesses are just inclined not to do anything.

But the longer this uncertainty persists, the more likely that negative effect is likely to manifest itself. I would say that, as you say, I think that especially leaders from other countries have been struggling to figure out exactly what is it that Trump responds to. Even more so, they're trying to figure out what he wants from them to get rid of the tariffs. We hear this over and over again from countless countries is that they go in, they talk to the president's advisors, they say we want to like work with you to negotiate with you, what do you want?

And they don't get a clear answer. And so I think it's way too premature to think that the uncertainty is about to go away soon, because I think that there is still this chasm of mystery about exactly what the United States wants and what the president can ultimately accept from a negotiation. All right, we're gonna take a quick break. And when we're back, we'll talk more about Trump's economic strategy

and the threat of a recession. If only life had a remote control, you could pause or rewind. Well, life doesn't always give you time to change the outcome, but pre-diabetes does. Take the one-minute risk test today at DoIHavePreDiabetes.org, brought to you by the Ad Council and its Pre-Diabetes Awareness Partners. Okay, we've got a listener question for you. It's about the strategic goals of Trump's tariff policy. It's from Kobe Brown in Spokane, Washington. Hi, Molly and Kate. My question is, what kind of long-term impact will these tariffs have? President Trump said that one of his goals in implementing these tariffs is to bring manufacturing back to the US But considering the expense and effort it takes to relocate manufacturing along with the limited nature of Trump's term It seems like that goal is going to fail

It makes sense that companies would just hold on for a few years until Trump is gone and then going back to business as usual? What are your thoughts? Thank you. Look, I think one thing that I think we can say with some confidence is that however all these tariff negotiations end up, we will end up with higher tariffs than we did before. And we will especially end up with higher tariffs on products that are very important to the president, like automobiles, steel and aluminum, semiconductors, a few other things. And so it seems almost certain that we should see some new investment, new jobs in the United States as a result of the fact that it is now very costly to import those things and it makes more sense to make them in the United States. We'd already seen, for example, that the steel tariffs that President Trump had imposed in

2018 in his first term had a little bit of that effect. But of course, that's only the narrow first order effect of the tariffs. And I think you have to step back and ask what are the bigger effects on the economy? First of all, it will make it very expensive to operate any business in the United States that uses those products that are protected, because we know with confidence that one thing protection via tariffs does is it makes the protected industry more expensive and less efficient. So I think that putting walls up around the US economy will over time lead to possibly

a more stable manufacturing sector, but a less competitive one. But look, the US economy is an incredibly big and dynamic economy, and it is very likely to be a very prosperous and dynamic economy for a very long time to come in spite of these tariffs. So I'm not convinced that five to 10 years from now, it will look a whole lot different than it does now. Molly, how do you think Trump or the administration

would respond to that, that tariffs have some limits? Well, as Greg has pointed out, there continues to be this fundamental conflict and disagreement within the administration about the long term goals of the tariffs. And that's part of why we see this back and forth, similar to Trump's first term, between the tariff enthusiasts, which are mostly Trump and Peter Navarro, and the more conventional sort of conservative economics types.

I think part of the reason that it's been hard for the administration to attain the kind of long-term certainty that might actually start this process of fundamentally reshaping the American and world economies is that as Kobe noted, Trump will be gone in a few years. If policies are passed by Congress, it's much harder to do, but that's for a reason. And it means that those actions are more durable. So, you know, this administration has pointed to, you know, some of the announcements that have already been made of companies making big investments in the US and saying that this indicates

that this strategy of reshoring manufacturing and creating American jobs is going to be successful in the long term. And I think, you know, as Greg said, there's a possibility that to some degree that is beginning to happen, but the lack of certainty, the lack of long-term certainty, the lack of confidence that in a few years from now this won't just all be overturned is a major impediment to these policies having the intended long-term effect. Greg, before we let you go, what is your prediction? Are we headed for a recession? Our last survey asked economists that question, and they put the probability of recession in the next 12 months at 45%, which was up a lot from 25% in our prior survey.

So the consensus is that we won't have a recession, but it's a very high risk. I think you're asking my view, I don't think we'll have a recession because I think, first of all, you know, one thing I've learned watching the economy over the years is that there's a self-correcting mechanism at work here. And so I kind of think that we'll look back and see that all the chaos of the last few weeks was a little bit of a sorting out process where the administration responding to all the outside feedback it got to its plan, dialed it back, and arrived at something that was perhaps a little less disruptive than people originally expected.

And for that reason, I think the economy will probably make it through the year without a recession. All right. Well, we'll have you back on at the end of the year to see how well that prediction goes and see, Molly, people can make predictions. Well, Greg's not a reporter. He's a commentator. Exactly.

And by the way, I just sort of gave you the consensus forecast, right? I just basically said, well, consensus is here, and I'm just a little bit to the side of the consensus. So it is not exactly a profile in courage, if I have to add, if I'm being honest. Greg, thanks so much for coming on. All right, thank you.

Thank you, Greg. OK, bye. So, Molly so much for coming on. All right, thank you. Thank you, Greg. Okay, bye. So Molly, before we let you go, we wanted to talk with you about a controversy, another one around the Secretary of Defense, Pete Hegseth. There's another Signal Group chat. This one involves his wife and personal lawyers and others. In this chat, Hegseth posted sensitive military information,

according to people familiar with the matter. What is this doing to Hegseth's position in the administration, and what's your sense of whether he's on thin ice? Well, on the one hand, Trump continues to defend Hegseth, and prominent voices in MAGA World continue to insist that he is the America first leader that we need at the Pentagon. But I think the fallout from this second group chat revelation was less significant that

it occurred. It seemed kind of along the lines of the first scandal, but in the wake of it, you know, a bunch of political appointees at the Pentagon were fired and then spoke out and claimed that they were being unfairly scapegoated, that they were being blamed for leaks, but that there was no evidence that actually happened. And one official former Pentagon spokesman, John Oliot, actually published an op-ed claiming that the Pentagon is in chaos and disarray and that Hegseth's leadership is becoming unsustainable. So I think there is a

feeling like there's still a problem at the Pentagon and Republicans in Congress are concerned about this. One Republican Congressman Don Bacon of Nebraska even publicly saying he thinks that Hegseth needs to go. I would say that, you know, based on all the scandals he came in with, many Republicans didn't necessarily have high expectations for Hegseth, but there still is some growing concern and so he's not out of the woods yet, even though Trump continues to say that he's not going anywhere. TAMARA KEITH, LESLIE HIRSCH, MSNBC Speaking of which, we are coming right up on 100 days. It's so exciting, isn't it?

Although sadly, that means we are coming up on the end of this podcast. Yeah. So next Friday will be our final episode. The big rundown where we tell you everything you need to know about Trump's first 100 days, and then you can just go to sleep for the next four years. And then maybe you'll take another vacation. Yeah. Maybe I'll go to Greenland or something, another place of no geopolitical significance where I can completely escape anything having

to do with American politics. Your kids are going to love that. I think they probably would. Yeah. Before we go, do you have any questions about what the Trump administration is doing? Email us and let us know. Please send a recording to thejournal at wsj.com.

That's thejournal at wsj.com. Trump 2.0 is part of The Journal, which is a co-production of Spotify and The Wall Street Journal. This episode was produced by Enrique Perez de la Rosa and edited by Catherine Whalen. Molly Ball is The Wall Street Journal's senior political correspondent. I'm Kate Leimbaugh. This episode was engineered by Peter Leonard. Our theme music is by So Wiley and remixed by Peter Leonard. Additional music in this episode by Griffin Tanner. Fact-checking by Kate Gallagher.

Artwork by James Walton. Trump 2.0 will be back with our final episode next Friday morning. See you then.