If you thought tariffs hurt the economy, wait until we no longer have an independent Fed

This week, President Trump mused about the possibility of removing Federal Reserve Chair Jerome Powell. Trump wants Powell to lower interest rates, hoping it will offset the higher prices caused by the global trade war he initiated, claiming lower rates would go "hand in hand" with his sky-high tariffs.

Powell has another year left on his term, and the president lacks the authority to fire the Fed chair, despite Trump bragging that his “termination cannot come fast enough,” and that “If I want him out, he’ll be out of there real fast, believe me.”

Powell is rightly concerned that the inflationary nature of low interest rates, combined with the higher consumer prices resulting from the tariffs, could lead to stagflation—an economic nightmare characterized by slow growth, high unemployment, and rising prices.

Powell, an experienced investment banker who was appointed to the Federal Reserve Board of Governors in 2012 and elevated to Fed chair by Trump in his first term, is far more qualified on the economy than Trump or anyone in his orbit. The former Carlyle Group partner was credited with successfully navigating the economic crisis caused by the COVID-19 pandemic. However, some criticized him for contributing to the 2021 asset bubble by significantly increasing the money supply while keeping rates low for an extended period.

Powell defended his strategy by arguing that the Fed's dual mandate of maintaining stable prices and high employment outweighed risks posed by inflated asset prices. It should also be noted that strategic tax policies would have been the most effective way to curb asset inflation, and the Fed does not have control over tax policy. For its part, Congress and the Trump administration had recently passed an enormous tax cut ahead of the pandemic, and neither Trump nor Biden utilized a windfall tax or other measures to strategically retighten the money supply and curb inflation, thereby deflating the asset bubble.

Trump was also critical of Powell during his first term when the Fed Chair called for interest rate hikes, which led to a market dip. Until recently, Trump has tended to view the stock market as a key indicator of his success as president. But while the president nominates the Chairman of the Federal Reserve, that is where the office’s influence over the Fed ends. The independence of the Federal Reserve is one of the key reasons that U.S. Treasury Bonds are typically seen globally as the safest place to park wealth. Trump’s tariff fiasco, however, threatened to tank the 10-year bond rate, which shot to 4.5% in the wake of their implementation and led to his "pause" on some tariffs.

Since the sub-prime crisis and the Great Recession that followed, both Wall Street and the White House have been addicted to artificially low interest rates that help avoid price discovery in the asset market. Powell made the bold move of raising short-term interest rates more than 5 points in just over a year, beginning in 2022, to slow the economy enough to curb inflation. This was the most significant rate increase in five decades. The Fed then pulled back modestly last fall. It worked, as inflation continued to decrease while employment grew and the stock market remained very healthy.

Tariff Strategy?

Interest rates are not the answer to Trump’s tariff plan. Instead, the plan, if you want to call it that, is suffering from any sort of actual coherent planning. The so-called reciprocal tariffs are actually formulated to balance trade imbalances, which are two completely different things. The idea that tariffs will result in trillions of dollars, potentially making it possible to eliminate the income tax (as Trump has repeatedly suggested), or enable countries like Vietnam and the United States to achieve completely balanced trade, is nothing short of ludicrous because it presumes that trade will be maintained at the same level, even though few would be able to afford the goods and countries would be deeply incentivized to increase instead trade that didn't involve the Unites States.

Tariffs can indeed be an effective tool in trade policy, and there is certainly an argument that the United States could have improved its position in certain trade relationships by strategically implementing them. However, the global, all-at-once, formulated by imbalances, pause-start-pause-start approach was doomed from the start, as noted by every tariff hawk not named Donald J. Trump or Peter Navarro.

I don’t often find myself agreeing with Elon Musk, but his criticism of Navarro, who has been Trump’s tariff whisperer for years, rang true. Navarro is a fringe economist who has been described as someone with "views on trade that are well outside the mainstream" and "not a big hitter in academic circles." In Navarro's 2011 book, Death by China, he used a made-up expert source named Ron Vara to issue ridiculously dark warnings about Chinese imports. The source, described as a doctoral student at Harvard, was referenced in multiple books by Navarro, only he doesn't actually exist.

In 2023, Navarro became the first former White House official imprisoned on a contempt-of-Congress conviction after refusing to comply with Congressional subpoenas for hearings related to his role in attempting to overturn the 2020 presidential election. A China-hawk who loves tariffs and went to jail for his role in the Big Lie, it’s no surprise that he’s been able to stay in Trump’s ear despite other members of the Trump inner circle, such as Musk and Treasury Secretary Scott Bessent, having obvious disdain for his ideas.

Manufacturing Renaissance?

Trump, Navarro, and Commerce Secretary Howard Lutnick have been attempting to sell the idea that the tariffs will lead to a massive reshoring of American manufacturing as well as big money for the U.S. However, no mainstream economists or business leaders seem to agree with them, and for good reason. We could have a lengthy debate about globalization and the shortcomings in U.S. tax policy and trade agreements that led to a massive offshoring of manufacturing jobs over the past four decades. We could talk about all of the ways the federal government and, to an even greater extent, states have made it harder for organized labor over that same period. There were also certainly opportunities and good reasons for the government to incentivize the strategic reshoring of manufacturing for parts and products critical to our national security and other national interests.

However, like so many other initiatives that have come from this President, even when they begin based in reality, the lazy, chaotic, and sometimes unhinged manner in which they come to be implemented creates infinitely more problems than they solve. Using across-the-board tariffs to bring back jobs that are long gone and for which we often have no infrastructure or expertise to support, and whose global value does not make sense for domestic production, is economically illiterate.

It's also worth examining whether we "have the cards" as Trump recently said to President Zelensky regarding Russia, when it comes to a trade war with China. They have already retaliated in a meaningful way by banning the sale of rare earth minerals, which we would desperately need to not only increase manufacturing but also to maintain current levels.  There appears to have been absolutely no forethought given to this and other potential responses from China, or to which country is best positioned to absorb the pain of a protracted trade war. Spoiler alert, it is not the United States. 

Furthermore, these countries didn’t steal our jobs. Big Business and bipartisan forces in our government conspired to set up an economic order in which the U.S. economy and its corporations would benefit from access to the cheapest labor and other inputs on the planet. Trump often brings up President William McKinley, who served from 1897 until his assassination in 1901, when discussing the benefits of tariffs. If you want to know what U.S. labor was like at the turn of the century, read Upton Sinclair’s The Jungle.

The dangerous and squalid conditions described by Sinclair and other chroniclers of the time largely continued through the Great Depression until an emerging unionization effort (captured in Steinbeck’s In Dubious Battle and Grapes of Wrath) endured decades of merciless, often deadly strike-busting, red scares, and other impediments before courageous persistence and FDR’s New Deal saw America build a middle class that was the envy of the world and took place during this nation’s greatest period of economic expansion and shared prosperity.

The robber barons of that era, however, really hated sharing that enormous wealth with the workers whom they relied on to amass it. Rather than fighting the unions, they bought politicians and pushed for ways to make it easier to relocate those jobs to places in the world where labor was cheap and cleaning up after their pollution wasn’t required. Profits soared, and unions, with much less leverage thanks to competition from the third world and further weakened by Republican states implementing so-called right-to-work laws, largely evaporated outside the public sector.

Union density is the most reliable indicator of wealth disparity, both when examining regions of the U.S. and economic periods. Union organization has been enjoying a modest comeback in the post-COVID era, but it is still a fraction of what it was half a century ago. As a result, wealth inequality has reached its highest levels in American history, surpassing even its peak in the years preceding the Great Depression. Just three Americans—Elon Musk, Jeff Bezos, and Mark Zuckerberg—hold more wealth than the bottom 50% or 160 million Americans! CEO pay has skyrocketed 1,500% since the late 1970s, while real wages/benefits adjusted for inflation have actually dropped for the average American in the same time period.

Musk, Bezos, and Zuckerberg sat with Trump at his inauguration after writing big checks for the event. Musk is something of an acting Prime Minister despite holding no official position, and Bezos has used his influence to help see that Trump installed a former Amazon executive as the head of OSHA. David Keeling, Amazon’s former “safety director,” was tapped to head the agency, despite Amazon having injury rates that are wildly out of step with industry averages, according to a December report issued by the U.S. Senate Health, Education, Labor, and Pensions Committee.

One of the last things Federal Trade Commissioner Alvaro Bedoya said he did before being illegally fired by the Trump administration in a purge of Democrat-appointed commissioners was to call out Bezos for the horrendous conditions in his Amazon warehouses, where Bedoya claims there are pain-pill vending machines installed for chronically overworked employees whose production is ruthlessly measured at all times. Bezos also saw a mass exodus of staff and subscribers when he announced shortly after Trump’s inauguration that he would insist that all op-ed contributors support a libertarian narrative espousing the virtues of “free markets and individual liberties.”

My point is that anyone who thinks Trump’s tariffs will bring back the days when a single-income family with a factory job could afford a house and a car will be sorely disappointed. Lutnick spoke of Americans screwing in those beautiful, tiny iPhone screws until it was pointed out that without that cheap Chinese labor, the costs of the phones would skyrocket to about $3,500. And that’s not because they would be providing middle-class, union jobs. It's because to maintain Apple’s soaring profits and just pay the minimum cost of doing business in the U.S., prices would soar beyond what even those in first-world countries could afford.

In reality, despite the wealth inequality caused by a strategic, decades-long upward redistribution of wealth, the United States was still getting the long end of the stick in the economic order it created, which continued to benefit average Americans in a way that Trump’s trade policies will soon erase. China was content to provide cheap labor and inexpensive goods, while investing much of its cash surplus in U.S. debt, and being content to allow the United States to dominate the top-end service layer of the economy.

Someone working in an Apple Store in the United States makes out considerably better than those assembling the iPhones and MacBooks, who not only get paid less but were discovered to have high suicide rates due to the miserable conditions. A Foxconn factory in Shenzhen, where about half of Apple’s iPhone production takes place, actually installed “suicide nets” after nearly a dozen workers committed suicide and pressured the company to improve working conditions, with one suggestion being to hang large nets from the factory buildings so employees could not leap to their death. It was also pointed out this week that McDonald’s and Starbucks employees in parts of Europe earn more per hour than non-union employees at Honda factories in Alabama, a right-to-work (for less) state.

Bezos and Musk have both been famously anti-union, as has Trump, who praised Musk for his willingness to fire on the spot employees who threatened to strike when Musk interviewed the President on X during his 2024 campaign. With all of the safety and regulatory cuts that have been made by Musk’s dubious DOGE apparatus, as well as the defunding and dismantling of so many seminal safety net programs, one might even get the impression that the plan is to create a nation of, to use the term favored by Vice President J.D. Vance, peasants, with little other choice than to work under third-world conditions, in a race to the bottom competition for any job the oligarchs haven’t managed to replace with AI or robotics.

This week, a whistleblower complaint alleged that Musk's DOGE team may have been responsible for a "significant cybersecurity breach," likely involving sensitive case files at the National Labor Relations Board. Daniel Berulis, an information technology staffer at the NLRB, alleges that he has evidence indicating that DOGE staffers were granted extraordinarily broad access to the NLRB's systems. He claims that, beginning in early March, logging protocols created to audit users appeared to have been tampered with, and that he had detected the removal of about 10 gigabytes worth of data from the agency's network. He also claims that an IP address in Russia attempted to log in shortly after with DOGE employee credentials.

Berulis told Reuters that the data includes proprietary business information from competitors, union organizations, and respondents with unfair labor practice claims, as well as their private affidavits. You can see why that might be of value to a bunch of oligarchs who loathe organized labor or the safety regulations they routinely run afoul of, or for someone with multiple business interests that may want insight into competitors. The larger takeaway, however, is that the people in charge are not friends of labor or the middle class.

Chess or Checkers?

Trump’s supporters have deftly vacillated from “tough medicine” to “art of the deal,” depending on which way the wind blows, with the most ardent sycophants claiming he’s playing some sort of 5D chess that the rest of us, including renowned economists like Jeffrey Sachs, who's forgotten more about the global economy than anyone on Trump's team knows, simply can’t understand. Trump's detractors claim his opponents are playing chess, while he’s playing checkers. I’d say it is more akin to playing something far more antiquated, like Jax or marbles, and playing it poorly.

Heading into 2025, the economy was well on its way to recovery, with unemployment rates down, prices on many goods falling, and the stock market signaling its enthusiastic approval. The last few weeks have witnessed the largest self-inflicted economic wound in human history, and its consequences will likely be felt for a generation. Someone asked me this week if I thought the administration was deliberately tanking the economy, either at the behest of a foreign actor or in service to an emerging techno-feudalism. My answer was that if you cannot tell whether it is gross incompetence or deliberate action, it does not really matter. Either way, the result will be a quick transition from the American dream to an American nightmare. 

The independence of our Federal Reserve is a key component in the global trust in our debt instruments that allows us to run deficits. Given the rattling of that trust initiated by Trump's spastic tariff policies, it is more important than ever. If monetary policy is the next separate power that the president co-opts for political gain, our ability to issue debt at low rates will be permanently compromised. Given the amount of debt we are obligated to service, the failure of DOGE to deliver meaningful savings, and the increased deficit under Trump's budget, that would bring upon an economic Armageddon that no developed nation in the modern world has ever faced.

Dennis "Mitch" Maley is an editor and columnist for The Bradenton Times and the host of our weekly podcast. With over two decades of experience as a journalist, he has covered Manatee County government since 2010. He is a graduate of Shippensburg University and later served as a Captain in the U.S. Army. Click here for his bio. Mitch is also the author of three novels and a short story collection available here.