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Former U.S. Treasury Secretary Larry Summers predicted that Donald Trump’s return to the White House could have “catastrophic consequences” for the economy.
Speaking at the Semafor World Economy Summit, Summers, who has frequently made waves as one of the Biden administration’s louder critics on economic policy, spoke in openly apocalyptic terms about the potential for a “populist” turn in a second Trump administration, predicting that the former president’s plans to raise tariffs and restrict imports could “set off an inflationary spiral.”
He also suggested that Trump would likely undermine the Federal Reserve’s policy independence, leading “to higher inflation expectations, which would prove self-fulfilling,” and blow out the budget deficit. The U.S., he said, would run the risk of following in the footsteps of Latin American cautionary tales like Argentina that saw their economies sink as their leaders embraced similarly populist policies.
“Argentina was going to be one of those really successful natural resource countries like Canada and New Zealand and Australia, and instead it lost 14 zeros from its currency because of successive hyper inflations and suffered nearly a double digit number of defaults and became an angry and unsettled society,” he said. “That is the risk that’s at stake here. And you know, it’s worrying for me.”
The “one critical difference” Summers said, is that the “world order never hinged on Argentina and the world order does hinge on the United States of America.”
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Summers, who spent much of the Biden administration sounding warnings about consumer prices, has been doing something of a victory lap in recent months as inflation has proven more stubborn than expected. He said he was still “a bit more worried than the consensus” about the current direction of inflation, adding that he thought “it was odd for the Fed to be holding out on the prospect that there’d be seven cuts this year.”
He also had some sharp words for the Biden administration, arguing it has “not been business friendly enough in its rhetoric and some of its actions.”
“Silly me, I think in a world of global competition and where we’re competing with China… when I first think of our large technology companies, I think of national champions assuring American leadership, not rapacious monopolists that need to be cut down to scale so they won’t have a chance of competing against China,” he said.
Despite sticky inflation, he suggested the White House had enjoyed some major economic success. “A lot of the problems are not so much related to things that are being done on an ongoing basis, but I do think if we had been more restrained at the time of the stimulus, we would have had a more restrained outcome.”