Teflon Don: can the economy withstand a Trump shock?

Authors: The Economist

Publisher:

The Economist

Published: 7/18/2025

Language:English

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David

Good morning 跑了松鼠好嘛, I'm David, and this is Goose Pod for you. Today is Tuesday, July 22th. At 13:00, we're asking: Teflon Don, can the economy withstand a Trump shock?

Ema

I'm Ema. It's a huge question. The global economy has been surprisingly tough lately, but this introduces a whole new level of uncertainty. It feels like everyone is holding their breath to see what might happen next with trade and economic policy.

David

Let's get started. The term "Teflon Don" is telling; controversies don't seem to stick, but his economic policies certainly do. The two big shocks being discussed are aggressive new tariffs and his potential willingness to fire the independent Federal Reserve chairman, Jerome Powell.

Ema

Exactly! It’s not just talk. He has openly criticized Powell for not lowering interest rates. The justification might be something trivial, like cost overruns on a building renovation, but the real issue is control over monetary policy, which is a huge deal for stability.

David

And while the law says a Fed chair can only be removed "for cause," Trump's first term showed a willingness to challenge these norms. The Supreme Court has even sided with him on firing other officials, creating a gray area around the Fed's independence.

Ema

So, it’s this combination of unpredictable tariffs and challenging the very institutions that are supposed to be the economy's guardrails. That's the core of the shock everyone is worried about. It's a stress test for the entire system, isn't it?

David

To understand the tariff issue, a little history helps. U.S. tariff policy has gone through three main phases. First, a "Revenue Period" until 1860, where they were the government's primary income source, almost like our modern income tax but on imported goods.

Ema

So, first, it was about funding the government. Then it changed? It’s fascinating how a tool can be used for such different purposes over time. What came next? Did they become less about money and more about something else?

David

Precisely. The second phase, from 1861 to 1933, was the "Restriction Period." Tariffs were used as protective walls to shield American industries from foreign competition. This is when you see rates get really high, sometimes around 50%, to make imported goods more expensive.

Ema

Ah, the "buy American" idea, enforced by taxes. That makes sense. Then we have the third phase, which I assume is our modern era. Things feel a lot more interconnected now, so I'd imagine the strategy had to change again, right?

David

Yes, the "Reciprocity Period" from 1934 onwards. This was marked by trade liberalization and agreements, bringing average tariffs down to around 5%. The idea was that if we lower our tariffs, other countries will lower theirs, benefiting everyone. This has been the standard for decades.

Ema

Until recently, it seems. Trump’s first term brought tariffs back in a big way, especially on Chinese goods, citing the "China Shock"—the loss of U.S. manufacturing jobs. It feels like we're seeing a return to the "Restriction" playbook, which is a dramatic shift.

David

It creates a fundamental conflict. On one side, the argument is that tariffs are necessary to protect American jobs and force a realignment of global trade. It’s a power-based model that prioritizes national interest over the global system that has been in place.

Ema

But on the other side, most economists see tariffs as a "blunt, outdated tool." They argue that tariffs disrupt supply chains, raise prices for consumers, and ultimately don't work as intended. Plus, other countries retaliate, which hurts American exporters, especially farmers.

David

This ties into the conflict with the Federal Reserve. Trump wanted lower interest rates to offset the economic drag from his tariffs. But the Fed, tasked with controlling inflation and maintaining stability, resisted. This is a classic clash between short-term political goals and long-term economic stewardship.

Ema

It really puts the Fed in a tough spot. It is supposed to be independent of politics for a reason. If a president can just fire the chair over policy disagreements, it undermines the Fed's credibility and could make economic turmoil much, much worse.

David

The impacts are not just theoretical. Studies of the 2018-2019 trade war concluded that it led to net welfare losses for the U.S. and the costs were borne primarily by American consumers and businesses, not foreign producers. The stated goals were not achieved.

Ema

So it's like trying to build a fence to protect your garden, but you end up accidentally trampling your own best plants in the process. The proposed new tariffs, like a 10% universal tariff, could be an even bigger version of that, right?

David

Correct. Projections indicate a broad 10% tariff, especially with retaliation, could reduce U.S. GDP by 1% and boost inflation. For example, some forecasts suggest core PCE inflation, the Fed’s preferred measure, could rise above 3%, complicating any plans to adjust interest rates.

David

Looking forward, the proposals are even more aggressive. A potential 10% universal tariff and a 60% tariff on Chinese goods would represent the most significant shift in U.S. trade policy in nearly a century, inviting massive global retaliation and economic disruption.

Ema

It could risk something economists call "stagflation"—where you get stagnant growth and high inflation at the same time. It also encourages "de-dollarization," as other countries may seek alternatives to the U.S. dollar if it's used so aggressively as a political weapon.

David

That's all the time we have for today. The key takeaway is that these policies challenge the foundations of the post-war global economic order. Thank you for listening to Goose Pod.

Ema

It’s a lot to think about, and the stakes are incredibly high for everyone. We'll be watching closely. See you tomorrow.

## Summary of "Teflon Don: Can the Economy Withstand a Trump Shock?" This news summary is based on a podcast episode from **The Economist**, published on **July 18th, 2025**. The podcast, titled "Teflon Don: Can the Economy Withstand a Trump Shock?", is part of their "Checks and Balance" series focusing on US politics and democracy. It examines the resilience of the global economy and the potential impact of Donald Trump's policies. ### Key News Metadata: * **News Title/Type:** "Teflon Don: Can the Economy Withstand a Trump Shock?" (Podcast Episode) * **Report Provider/Author:** The Economist (hosted by John Prideaux with Charlotte Howard and James Bennet) * **Date/Time Period Covered:** Published July 18th, 2025, discussing current and potential future actions related to Donald Trump's policies. * **News Identifier:** `https://www.economist.com/podcasts/2025/07/18/teflon-don-can-the-economy-withstand-a-trump-shock` ### Main Findings and Conclusions: The central theme of the podcast is the **remarkable resilience of the global economy**. However, it raises concerns about the potential impact of Donald Trump's actions on this resilience. The podcast will specifically examine: * **Donald Trump's potential damage to the economy:** The article questions whether the economy can withstand a "Trump shock." * **Impact of upcoming tariffs:** Trump's tariffs are set to take effect in the coming weeks, which could have a significant effect. * **Potential firing of the Federal Reserve chairman:** The article highlights that Trump is reportedly considering firing the independent Federal Reserve chairman, which could destabilize economic policy. ### Key Statistics and Metrics: No specific numerical statistics or metrics are provided in this excerpt. The focus is on qualitative analysis of potential economic impacts. ### Important Recommendations: No explicit recommendations are made in this excerpt. The content is analytical and exploratory. ### Significant Trends or Changes: * **Global Economic Resilience:** The global economy has demonstrated a strong ability to withstand pressures. * **Impending Tariffs:** The imminent implementation of tariffs by Donald Trump represents a significant potential change. * **Uncertainty around Federal Reserve Independence:** The possibility of Trump firing the Federal Reserve chairman signals a potential shift in economic governance. ### Notable Risks or Concerns: * **Tariff Impact:** The introduction of tariffs could negatively affect economic growth and stability. * **Federal Reserve Independence:** Undermining the independence of the Federal Reserve could lead to unpredictable economic outcomes and a loss of confidence in monetary policy. * **"Trump Shock":** The overall potential for Donald Trump's policies and actions to disrupt the current economic equilibrium is a primary concern. ### Material Financial Data: No specific financial data or figures are presented in this excerpt. ### Additional Context from Related Podcasts: The excerpt also mentions other related podcasts from The Economist, offering broader context on current events: * **"Money Talks"**: Discusses "Combat capitalism: how Ukraine built a war economy" and lessons for the West on re-arming without re-industrializing. * **"The Intelligence"**: Covers topics like the Houthis resuming Red Sea strikes, "climate visas," and the financial health of British universities. * **"Editor's Picks"**: Features an article on the ineffectiveness of pop stars entering politics. * **"Babbage"**: Begins a four-part series on the history, present, and future of nuclear weapons.

Read original at The Economist →

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This week, we examine whether Donald Trump will damage the resoundingly resilient economy. Jul 18th 2025|1 min readThe global economy has proven to be remarkably resilient. Growth has held up, but how much of a factor could Donald Trump play? His tariffs are set to take effect in the coming weeks, and he’s now mulling firing the independent Federal Reserve chairman.

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This week, lessons for the West on how to re-arm without re-industrialising35:47 The IntelligenceGown and out: are British universities broke?Also on the daily podcast: China’s amateur footballers and the politics of Superman20:43 Editor’s PicksArtist’s statement: why pop star forays into politics are seldom effectiveA handpicked article read aloud from the latest issue of The Economist06:33 BabbageThe bomb (part 1): were nuclear weapons inevitable?

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