Why the failure of US economic policy will reignite inflation

In this article I look at the inflationary consequences for the dollar of Trump’s proposed tariffs. Hint: it’s not good!

Last week, I explained why I thought that the economic policies of Trump/Bessent 2025 would fail. The assumption is that they would pursue MAGA (make America great again) by tax policies favourable to businesses while protecting their markets through tariffs. Both Trump and his nominee for Treasury Secretary have promised to cut corporation and income taxes and to raise revenue instead through tariffs —“the most beautiful word”. And DOGE (a new Department of Government Efficiency headed by Elon Musk and Vivek Ramaswamy) would cut out wasteful spending to the tune of $2 trillion.

As Dr Johnson said of second marriages, DOGE represents the triumph of hope over experience. And it won’t be the first time that brilliant businessmen such as Musk have been bested by government bureaucracy. Either they knuckle under into a thoroughly bureaucratic environment, in which case their attempts to reduce wasteful spending fail, or they face ignominious defeat and resignation. Whichever way, the cuts in spending are not going to materialise to any degree, and the revenue shift from corporate and income taxes to tariffs will be attempted against a background of a rapidly tightening Federal debt trap, making funding the budget deficit increasingly difficult.

Bubbles accumulate and eventually pop