Trump's Tariffs, Deportations May Stoke a Crisis Worse Than Recession

High inflation, slow growth and rapid rise in unemployment may spark stagflation

- Bhagyashree Garekar

WASHINGTON - The US economy under President Donald Trump could be heading for a rare and scary phenomenon: stagflation.

Last witnessed in the US in the 1970s after the oil crises of 1973 and 1979, stagflation is caused by a combination of high inflation, slow economic growth and a rapid rise in unemployment.

It had to be crushed with brutal interest rate hikes of up to 20 per cent and caused two recessions - the first from January to July 1980, and the second from July 1981 to November 1982.

In today's economy, impending tariffs on goods from Canada and Mexico, coupled with a mass deportation drive, could tip the economy into stagflation, according to noted economist Marcus Noland.

Mr Trump's tariffs could drive up the cost of goods (inflation), while slowing down trade-related growth (stagnation), especially if trade partners retaliate. If job losses also follow, stagflation is a possible result.

"We are seeing a deterioration of economic conditions at the moment - it would not amount to stagflation. But, if you do mass deportations and if you do the tariffs on Canada and Mexico, yes, it is possible that you could get the country into stagflation," Dr Noland told The Straits Times.

The newly elected US President has set a torrid pace on both economic and foreign policies in the one month he has been in office.

He has signed more than 70 executive orders that have included downsizing the government and imposing tariffs on America's trading partners.

In the latest move, Mr Trump posted on Truth Social on Feb 27 that he plans to impose an additional 10 per cent tariff on imports from China and move ahead with 25 per cent tariffs on products from Canada and Mexico - effective from March 4 - which had been paused for a month.

The tariffs are framed as measures to induce these nations to stop the inflow of fentanyl, a deadly opioid, and illegal immigrants across the US borders.