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Home»Finance»Trump’s tariffs and tax bill look like a ‘Greek tragedy’ that could tank the economy and stocks, former IMF official warns
Finance

Trump’s tariffs and tax bill look like a ‘Greek tragedy’ that could tank the economy and stocks, former IMF official warns

June 14, 2025No Comments4 Mins Read
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Trump's tariffs and tax bill look like a 'Greek tragedy' that could tank the economy and stocks, former IMF official warns
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Desmond Lachman, Resident Fellow at the American Enterprise Institute for Public Policy Research, speaks at the Council on Foreign Relations World Economic Update in New York March 16, 2011. He wears a dark suit, collared shirt, and dark red tie. He is holding up his hand in an emphatic gesture.
Desmond Lachman is the previous deputy director for the Worldwide Financial Fund.REUTERS/Mike Segar
  • Trump’s financial insurance policies pose the chance of inflation and recession, says former IMF official Desmond Lachman.

  • He’s amongst a refrain of specialists which have expressed concern over Trump’s proposed tariffs and tax cuts.

  • Rising inflation and bond yields on account of these insurance policies might harm shares, Lachman warns.

Like a protagonist in a Greek tragedy, President Donald Trump is exhibiting a regarding degree of hubris in his dealing with of the US economic system, former IMF official Desmond Lachman worries.

Regardless of warnings from credible sources — like Fed Chair Jerome Powell, JPMorgan CEO Jamie Dimon, and BlackRock CEO Larry Fink — about what tariffs would imply for inflation and development, and what his tax reduce invoice would imply for bond yields and the US greenback, Trump is doubling down on these insurance policies, Lachman mentioned in a June 10 put up for the American Enterprise Institute, the place he’s a senior fellow.

Except Trump modifications course, Lachman mentioned, he might find yourself reigniting inflation, pushing up long-term bond yields, additional tanking the US greenback, and sending the US economic system into recession.

“To Trump, these warnings are like water off a duck’s again. As an alternative of dialing again his tariff coverage, Trump has not too long ago raised the import tariff on all aluminum and metal imports to a staggering 50%,” Lachman wrote.

He continued: “On the identical time, as an alternative of developing with belt-tightening income and spending measures to deal with the nation’s gaping funds deficit of 6.25% of GDP, Trump is making each effort to safe the passage of his budget-busting One Massive Lovely Invoice.”

Up to now, inflation has been tame and the labor market has held up as companies have began to digest tariffs. However Lachman mentioned the US economic system shouldn’t be out of the woods but. Since companies stockpiled stock to arrange for Trump’s tariffs, their results will not begin to present up till the second half of the 12 months, he informed Enterprise Insider on Friday.

“The truth that you are not seeing it within the Could, June, July information, it doesn’t suggest something,” Lachman mentioned.

Here is the US commerce deficit displaying a surge in overseas items shopping for from US companies in late 2024 and early 2025.

trade deficit
St. Louis Fed

However tariffs aren’t the one inflationary issue doubtlessly at play. Lachman mentioned that when you add the implications of Trump’s tax invoice on the worth of the US greenback because the the nationwide debt and funds deficit develop, shoppers might find yourself paying even larger costs. With the greenback’s worth down 10%, for instance, it means overseas items are dearer along with the ten% tariffs, or extra, already being paid.

In an inflationary atmosphere — and with no indication that the US authorities is seeking to cut back its debt and funds deficit — overseas buyers have began to flee, and will proceed to take action. That would ship long-term Treasury charges hovering, Lachman mentioned, slowing the US economic system as the price of lending follows swimsuit.

All of this places US shares at risk with valuations elevated, Lachman mentioned. For instance, this is the Shiller cyclically-adjusted price-to-earnings ratio for the S&P 500, which measures present inventory costs in opposition to a rolling common of earnings during the last 10 years.

shiller pe ratio
GuruFocus

“Begin with the truth that the inventory market has obtained very excessive valuations, after which overlay that with the probability that you could possibly have both a bond or a greenback disaster, and it could appear to me that shares do not do very nicely,” he mentioned.

The parable in all probability most related to hubris and its generally disastrous penalties is the story of Icarus. Seeking to escape from a labyrinth, his father builds him wings manufactured from wax. Icarus succeeds in getting off the bottom, however ultimately ignores his father’s warnings and flies too near the solar, melting his wings.

Trump having imposed steep common tariffs with out sparking inflation or a recession has up to now defied standard knowledge and warnings from prime economists. However with Trump’s tax invoice on the best way, will his wings, together with the US economic system and inventory market, quickly begin to soften?

Learn the unique article on Enterprise Insider

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