When my kids were in college, I insisted that they each take at least one economics course. Being economically illiterate ranks, in my mind, just below not being able to read or write.
Now we have a president who is fundamentally ignorant of the most basic and incontrovertible economic principles, as evidenced in his latest round of foolhardy tariffs (and in so many other ways).
President Trump has been told over and over again by economists of all political persuasions that tariffs are much like a sales tax and will ultimately be paid by American consumers; he likely would have been taught that concept during his time at the University of Pennsylvania’s Wharton School.
And while the overall inflation rate has only been edging up since Mr. Trump began imposing tariffs, the cost of many imported items has been escalating. In June, prices for furnishings and durable household equipment — a category with high import exposure — rose by 1.3 percent, the biggest increase in more than three years. Prices for recreational goods and vehicles, which are also frequently manufactured abroad, increased by 0.9 percent, the largest jump since February 2024.
And tariffs likely played a role in the sudden slowdown in payroll growth announced on Friday, with the economy having created just 106,000 jobs in the last three months, far less than its monthly average in recent years.
Mr. Trump’s response? Shoot the messenger: He directed his team to fire the head of the Bureau of Labor Statistics, which compiles the figures.
Mr. Trump’s ignorance goes far beyond the tariffs-are-a-tax concept. He believes trade deficits are tantamount to “losing” money to other countries. Losing money is what happens when $100 falls out of your wallet. When you spend $100 to buy new earbuds made in China, you haven’t lost it; you’ve spent it on earbuds.
(Unsurprisingly, Mr. Trump also regularly misstates the size of the trade deficit. It’s not the $2 trillion he claims; last year it was under $1 trillion.)
Moreover, the tariffs that Mr. Trump is imposing reflect no rhyme or reason. What is the point of imposing a 40 percent tariff on poor Laos? The country is hardly in a position to buy much from us.
Mr. Trump’s fervent belief in tariffs seems to have originated in the 1980s, as Japanese cars flooded into the United States and wreaked havoc on domestic car manufacturers. Yet those same carmakers — such as Ford and General Motors — have been among the most vociferous opponents of his tariff regime today. Their latest financial results suggest that they stand to lose somewhere between $1 billion and $4 billion in earnings this year from Mr. Trump’s tariffs.
Mr. Trump has demonstrated his economic ignorance in many other ways — with potentially even greater adverse consequences. His most recent, and potentially most dangerous, transgression has been his harsh and wrongheaded criticism of the policies of the Federal Reserve and its chairman, Jerome Powell.
Mr. Trump insists that our interest rates are too high and should be as low as Europe’s (2 percent versus our 4.5 percent). Yet when he pronounces our economy “the strongest in the world,” as he regularly does, he is unconsciously citing one of the reasons for our higher interest rates: Robust economies need higher interest rates to restrain inflation.
Indeed, Mr. Trump seems not to understand inflation. He repeatedly — sometimes on multiple occasions in a single week — pronounces that we have “no inflation.” In fact, in the most recent 12 months, prices rose by 2.6 percent over the prior year, still modestly above the Fed’s 2 percent target and perhaps accelerating.
Another reason for our elevated interest rates is the massive budget deficits that we have been running, deficits that Mr. Trump made worse with the tax cuts he pursued in his first term and continues to push in his second. His signature domestic policy law will increase the deficit — and therefore our borrowing needs — by an estimated $3.4 trillion over the next decade.
Mr. Powell’s term is coming to an end next year, and the prospect of Mr. Trump picking his successor is downright scary. In his first term, Mr. Trump tried to appoint several individuals to the Federal Reserve Board who were so manifestly unqualified — with views that were so wildly outside of any accepted principles of monetary policy — that many Republicans refused to support them and they were forced to withdraw.
Mr. Trump now clearly regrets his decision to appoint Mr. Powell in 2017. A more unbridled Trump 2.0 might try for a far less responsible candidate whose selection to the most important and powerful economic position in our government could easily upend financial markets and perhaps the entire economy.
The president barely seems to comprehend supply and demand, which are among the most basic concepts in economics. He evangelizes for lower oil prices but simultaneously calls on the energy industry to “drill, baby, drill.” Lower prices discourage drilling; the number of rigs in operation has been falling as oil prices have softened.
In a similar vein, while he acknowledged that tariffs would raise the prices of imported cars, he argued that Americans could avoid tariffs by buying cars made in America. But it is well documented that when the price of an imported item goes up, domestic producers are then free to increase their own prices — and often will.
To be fair, the president occasionally shows glimmers of economic comprehension. With regard to the dollar, for example, he understands that the mantra of many Treasury secretaries that “a strong dollar is in the national interest” is more complicated than that simple sentence suggests. While a strong dollar has many advantages, a weak dollar makes our exports more competitive and restrains imports by making them more expensive (admittedly potentially creating inflationary pressures).
“I know better than anybody what’s good for the Market, and what’s good for the U.S.A.,” Mr. Trump proclaimed in a recent social media post. “People don’t explain to me, I explain to them!” Perhaps he should consider flipping those two clauses.
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Steven Rattner is a contributing Opinion writer and was a counselor to the Treasury secretary in the Obama administration. @SteveRattner • Facebook
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