3 Dangerous Assumptions You Should Not Make About Trump’s Economy
Written by
Nicholas Morine
Edited by
Amber Barkley
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As President Trump‘s second term continues, the controversial and outspoken leader has managed to make headlines for a variety of reasons — perhaps most notably, his economic policy decisions.
Given the wealth of analysis dedicated to scrutinizing and detailing the president’s every move in this arena, it seems appropriate to outline a few potentially dangerous assumptions being made about the economy under Trump, and why those assumptions could rest upon less-than-solid footing.
The Stock Market Has Reached the Bottom
While many analysts may be calling for buying back into the stock market in order to take advantage of recent lows, that could end up costing you a bundle if you choose the wrong picks — or the wrong time.
According to CNBC’s Yun Li, the market bottom has not, in fact, been realized yet. Lin quoted Rebecca Cheong, head of Americas equity derivatives strategy at UBS, on the subject.
“The ultimate bottoming signal not here yet — 4/7 pre-open was only a local low; expect more pain to come,” Cheong said.
Trump’s Tariffs, Broadly Speaking, Will Be Short-Lived
And although many have suggested that Trump’s sweeping tariffs may be a mere negotiation tactic — a strong-armed maneuver to win more desirable concessions at the international bargaining table — experts seem to be near-united in a belief that tariffs will certainly be much higher as the president’s second term draws to a close than they were when he was inaugurated this past January.
USA Today spoke to four economists regarding the matter, and all four indicated that, while it was difficult to predict exactly what 2028 might look like on the tariff file, it was most likely that at least some of these protectionist policies would stick.
Colin Grabow — associate director, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute — put it most concisely: “No crystal ball is needed to see that tariffs will almost certainly be higher in 2028 than when President Trump took office in January — the only question is by how much. Another outcome would be deeply surprising. For America, the tariff man cometh.”
However, Some Tariffs May Not Last
Bernard Yaros, lead U.S. economist for Oxford Economics, reinforced Grabow’s take. “However,” he added, “a safe bet would be to assume that the significantly higher tariffs on China will remain in effect, as decoupling from the world’s second-largest economy seems to be one of the administration’s clearest goals amid the chaotic rollout of reciprocal tariffs this month.”
He also predicted that steel, aluminum, vehicle and vehicle parts would be longer-term, but he expects other tariffs will be reduced or removed by 2028.
Trump Can Replace Income Taxes With Tariff Revenue
Trump has floated the idea of replacing the federal income tax with tariff revenue, but this scenario remains quite unlikely.
The Peterson Institute for International Economics (PIIE) flatly rejected the plausibility of the idea, with authors Kimberly Clausing and Maurice Obstfeld reacting to the question of whether tariffs can replace the income tax: “Simply put, no.”
They explained that the income the government is likely to see from tariffs would not exceed the income it currently receives from income taxes.
“Tariff rates would have to be implausibly high on such a small base of imports to replace the income tax, and as tax rates rose, the base itself would shrink as imports fall, making Trump’s $2 trillion goal unattainable,” they concluded.
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