A NEW NATIONAL AND INTERNATIONAL SECURITY THREAT: TRUMPENOMICS
The Steady State | By Susan Koch April 27, 2025
The peaceful and prosperous decades since the Second World War – which present such a contrast to the catastrophic interwar period – testify to the wisdom of US leaders and their understanding of enlightened self-interest.
Unfortunately, President Trump has quickly sought to destroy the long-established foundations of U.S. economic prosperity and leadership. In October 2024, the lead article in The Economist was titled “The Envy of the World,” The subject was the U.S. economy, which the well-respected magazine wrote “had left other rich countries in the dust,” a trend which it expected to continue. Unfortunately, the strength of the U.S. economy, measured by sturdy growth, high employment and decreasing inflation, was not understood by American voters. Instead, a majority bought into the Trump myths about a failing economy, and voted for him in the hopes that things would improve.
The outcome thus far is just the opposite. In its World Economic Outlook of April 2025, the IMF lowered its prediction of the U.S. growth rate in 2025 to 1.8 percent, down from 2.7 percent in its January Outlook. Global growth was projected to be 2.8 percent in 2025, down from 3.3 percent. At the same time, the International Monetary Fund (IMF) revised its inflation projections upward. There is a real danger of the repeat of the stagflation — little or no growth, combined with high inflation — that the United States has not seen in decades.
The IMF was clear that this expected downturn was the result of “the swift escalation of trade tensions and extremely high levels of policy uncertainty” – an obvious reference to the President’s on-again/off-again imposition of tariff on virtually all U.S. trading partners, large and small. According to the IMF, the imposed tariffs were the largest the world had seen in over a century — and we know only too well the damage done by the tariffs of the interwar period.
President Trump initially called April 2nd, when the major tariffs first took effect, as “Liberation Day.” It is hard to understand what he meant. Liberation from an economic and financial system that was once one of the leading pillars of our national security? Liberation from the free trade that had brought the United States unprecedented prosperity for the last 75 years? Liberation from mutually beneficial economic and financial relations with our closest allies? Liberation from a global economy in which we attracted huge foreign investments looking for–and finding– a peaceful, stable safe haven, and in which the dollar was the reigning currency?
President Trump has often said that he intended tariffs to bring manufacturing back to the United States. Even if that were to happen, it would take years to build new factories. And products wholly made in the United States would undoubtedly cost a great deal more to American consumers given our high labor costs compared to most foreign suppliers. Strangely, trade advisor Peter Navarro has said that we do not want factories like the large BMW and Mercedes plants here which build automobiles with many foreign-origin components. I wonder if he feels the same way about all U.S. automobile brands, which also depend on foreign parts. Given the nature of contemporary supply chains and other countries’ imposition of retaliatory tariffs, many small U.S. manufacturers already believe that they cannot stay in business much longer.
President Trump also does not seem to understand that the U.S. economy depends on services and intellectual property. Those now contribute ten times more than manufacturing to U.S. Gross National Product. But Trump is working hard to undermine them. Through devastating policies toward institutions like the National Institutes of Health and the National Science Foundation, and our most important research universities, he is apparently working to destroy U.S. global leadership in scientific and technological innovation. Foreign tourism is down dramatically, with a broad negative effect throughout the U.S. economy. Reckless immigration policies are dissuading students and researchers from visiting, let alone moving to, the United States. Apparently President Trump has forgotten, if he ever knew, how indispensable European immigrants were to our victory in World War II.
Most Americans alive today have never known a period when both the bond and stock markets fall simultaneously. Normally, the two are in negative correlation – with the one rising while the other falls. But the Trump Administration managed to pull off the dreadful achievement of a positive correlation between the two.
With those dangerous developments, Trump pulled back on many – but not all – new tariffs. He has been inconsistent and ambiguous about his future tariff plans. The stock and bond markets reacted somewhat positively to the lifting of some tariffs, but continue to be plagued by the uncertainty that may be the guiding principle of this Administration. As the IMF stressed in its April Outlook, markets look for stability and certainty above all. They do not do well at times like now, when the IMF uncertainty indices are exceptionally high.
There is still time for President Trump to abandon his planned tariffs, to restore research and development funding, to welcome foreign students and researchers, and overall to go back to the economic and financial regulations and policies of most of the past 75 years. Such a turnaround would have an immediate beneficial effect. However, we cannot expect quickly to regain the full prosperity of the recent past. That will require restoration of economic and political confidence in the United States, which will take a great deal of time and effort. We can only hope that is not beyond the capacity of the current Administration, or otherwise that we will have enough time to wait until a successor Administration is up to the task.
Dr. Susan Koch’s federal government service included work in the White House National Security Council Staff, State Department, Office of the Secretary of Defense and the Arms Control and Disarmament Agency, specializing in weapons of mass destruction arms control and nonproliferation. She is a member of The Steady State, an organization of former national security officials.