Marketplace Podcast Summary: "The Economy Trump Will Inherit" Release Date: November 7, 2024
Host: Kyle Rysdal
Producer: Marketplace Team

Introduction

In the November 7, 2024 episode of Marketplace, host Kyle Rysdal delves into the economic landscape that President-elect Donald Trump is poised to inherit. The discussion spans market reactions to Trump's victory, anticipated policy changes, and their potential impacts on various sectors of the economy. Through expert interviews and insightful analysis, the episode provides listeners with a comprehensive understanding of the forthcoming economic shifts.

Market Reactions to Trump's Election

Immediately following Trump's election, financial markets exhibited significant movements:

• Stock Market Surge: Major indices surged by over 2.5% as investors reacted to anticipated pro-business policies.

  "The stock market is up for a pretty simple reason," explains Sabri Benishore (01:48), attributing gains to expected corporate tax cuts.

• Bond Yields Spike: Bond markets responded to concerns over increased government borrowing.

  "To pay for promised tax cuts, the Government may have to borrow trillions from the bond market," notes Rick Reeder, CIO of Global Fixed Income at BlackRock (02:41).

• Cryptocurrency Rally: Bitcoin experienced a 7% increase, fueled by Trump's vocal support for digital currencies.

  "Trump was very clear on his support for bitcoin," states Rafael Duguay (02:18).

• Solar Industry Decline: Conversely, solar stocks plummeted by double digits due to fears of policy reversals on green incentives.

  "The new Trump administration does present risks to a lot of the different incentives in the Inflation Reduction Act," remarks Michelle Davis, Head of Solar Research at Wood Mackenzie (03:29).

Economic Foundations Inherited by Trump

Michelle Davis provides an optimistic outlook on the state of the economy that Trump inherits:

• Robust Growth: The U.S. economy has been growing faster than most major developed countries, with productivity per worker on the rise and inflation decreasing (04:54).

  "The kind of growth that means the Fed can feel comfortable continuing to lower interest rates, which makes it very unlikely we'll have a recession," Davis explains.

• Global Comparison: While the U.S. thrives, regions like Europe continue to face economic struggles (05:24).

  "The United States has grown faster than almost all of its peer economies," Davis highlights (05:24).

Implications of Trump's Economic Policies

Trump's economic agenda centers on two main pillars:

1. Tax Cuts: Proposed reductions in corporate income tax rates aimed at stimulating economic growth and boosting corporate earnings.

   "Tax cuts are good for earnings and stocks," confirms David Kelly, Chief Global Strategist for JP Morgan Asset Management Business (01:57).

2. Higher Tariffs: Plans to impose tariffs up to 60% on Chinese imports, intending to protect domestic industries but risking increased costs for consumers and businesses.

These policies are anticipated to be inflationary, with significant implications for growth and deficits. However, uncertainties remain due to Trump's inconsistent policy announcements and potential Congressional hurdles.

Tariffs: Impact on Businesses and Consumers

Kristen Schwab explores the tangible effects of tariffs on the economy:

• Business Challenges: Rick Muscat, President of Deerstags, discusses the high costs of relocating manufacturing from China.

  "Tariffs are supposed to encourage US Companies to diversify their supply chains," Muscat explains, noting the financial strain on businesses (10:18).

• Consumer Prices: Companies like Deerstags may pass increased costs onto consumers, potentially raising product prices by approximately $25 per pair of shoes (11:00).

  "Trump's proposed 60% tariff would add something like 25 bucks onto the sticker price of his shoes," Muscat states (10:56).

• Industry-Wide Impact: Tariffs on steel have already affected various sectors, including beer, automotive, and cutlery industries.

  "Those companies were extremely hard hit because a huge chunk of their costs just suddenly got more expensive," explains Sabri Benishore (10:51).

Monetary Policy and The Fed's Response

The episode examines the interplay between fiscal policies introduced by Trump and the Federal Reserve's monetary strategies:

• Interest Rate Decisions: The Federal Reserve is anticipated to cut interest rates, providing a cushion against potential inflationary pressures from Trump's policies.

  "It's still widely expected to cut tomorrow on Thursday, 25 basis points," Heather Long, Washington Post columnist, indicates (15:48).

• Fed's Strategy: Fed Chair Jerome Powell may adopt a "wait and see" approach, delaying further rate adjustments until the effects of new policies become evident (15:58).

  "He could use that press conference tomorrow to sort of start to open the door to we think we're in a good place," Long suggests (16:27).

Dollar Strength and Its Effects

Trump's economic policies and market reactions have influenced the strength of the U.S. dollar:

• Dollar Appreciation: The dollar has strengthened, making foreign travel cheaper but potentially hindering U.S. exports.

  "It's a good time, if you can afford it, to book a vacation abroad because the dollar goes a long way," Long remarks (17:32).

• Export Challenges: A strong dollar could make American products less competitive overseas, challenging Trump's goal to revive U.S. manufacturing.

  "It makes it more difficult to sell US products abroad and revive US Manufacturing in the ways that we want to," Long notes (17:32).

Immigration Policy Changes

A significant portion of the episode focuses on Trump's proposed immigration reforms and their economic implications:

• Deportation Plans: Trump has pledged to initiate the largest deportation program in U.S. history, targeting approximately 11 million unauthorized immigrants.

  "Trump has a history of making big promises on immigration that don't actually materialize," acknowledges Rafael Duguay (20:12).

• Economic Impact: Economist Stan Voiger estimates that GDP growth could decrease by nearly 0.5 percentage points due to a reduced labor force (20:41).

  "People don't earn money, they don't produce, they don't generate capital income for others," Muscat explains (20:41).

• Inflationary Pressures: Removing a significant workforce may lead to higher prices in sectors reliant on undocumented workers, such as agriculture and services.

  "If you remove migrants from a local economy, you're going to raise prices in... everything from produce to Uber rides," Muscat states (21:08).

Labor Market Challenges

The potential reduction in the labor force underscores existing labor shortages across various industries:

• Skilled Worker Shortages: Sectors like construction and manufacturing are struggling to fill positions due to a lack of skilled workers and high turnover rates.

  "We haven't heard any of our members telling us that it's getting easier to find qualified workers to hire," says Brian Turmail, VP for Workforce at Associated General Contractors of America (23:34).

• Workforce Development Initiatives: Companies like GE Appliances are partnering with educational institutions to create pipelines for skilled workers, offering programs that include hands-on training and apprenticeships.

  "We built a mock assembly line where students learn hands-on experiences from our production employees," Katina Whitlock, Senior Manager at GE Appliances, explains (24:45).

• Educational Barriers: A significant portion of federal funding favors four-year degrees over vocational training, exacerbating the shortage of skilled tradespeople.

  "80% of what the federal government spends is encouraging people to get a four-year college degree and only 20% goes to career and technical education," Muscat highlights (23:51).

Conclusion: Partisanship and Trust in Economic Data

The episode concludes by addressing the increasing partisanship affecting trust in government economic data:

• Evolving Trust Dynamics: A Gallup poll reveals a reversal in trust levels, with Trump supporters now trusting government data more than Democrats (26:00).

  "It's no longer going to be his game and his say very soon," Long remarks on Fed Chair Powell's position amid political shifts (16:38).

• Economic Uncertainty: With policy changes looming, both businesses and consumers face uncertainty, making it challenging to predict economic trajectories.

  "Imagine being in the Fed in the middle of all that," Long comments on the complexities facing monetary policymakers (19:08).

Notable Quotes and Attributions

• Sabri Benishore: "The stock market is up for a pretty simple reason." (01:48)
• Rick Reeder: "To pay for promised tax cuts, the Government may have to borrow trillions from the bond market." (02:41)
• Michelle Davis: "The kind of growth that means the Fed can feel comfortable continuing to lower interest rates, which makes it very unlikely we'll have a recession." (04:54)
• Michelle Davis: "The new Trump administration does present risks to a lot of the different incentives in the Inflation Reduction Act." (03:29)
• Rick Muscat: "If I don't pass the costs on ultimately to the consumer, then I have to reduce my cost of doing business so that I could stay in business." (11:18)
• Heather Long: "Fed Chair Powell has become a dexterous communicator." (16:27)
• Rafael Duguay: "Whether removing undocumented immigrants also raises wages for low skilled workers is a matter of economic debate." (21:16)

Final Thoughts

"The Economy Trump Will Inherit" offers a nuanced exploration of the anticipated economic landscape under President-elect Trump's administration. By examining market reactions, policy proposals, and their broader implications, the episode equips listeners with the knowledge to understand and anticipate the changes ahead.

This summary is based on the transcript provided and aims to capture the essence of the Marketplace podcast episode for those who have not listened to it.