Prominent economist Justin Wolfers issued a stark warning this week about the economic consequences of President Donald Trump's tariff policies, noting that despite recent rollbacks on some grocery items, the broader framework continues to threaten economic stability with early signs of stagflation.
The Tariff Impact on Inflation and Interest Rates
During an appearance on ABC News, Wolfers explained that while Trump recently eliminated tariffs on certain imported food products like coffee and bananas, the majority of tariffs remain active. These ongoing trade barriers continue to disrupt supply chains and create what economists call a supply shock, contributing to persistently high inflation levels.
"So far we've seen rising inflation — well, not really rising, sorry, persistently high inflation — and that's one of the things keeping interest rates high," stated Wolfers, who serves as an economics professor at the University of Michigan.
Early Stages of Stagflation Emerge
The economist pointed to concerning economic indicators that suggest the economy is entering what experts call stagflation. Wolfers broke down this economic phenomenon in simple terms for viewers, explaining that the 'flation' component represents the inflation that consumers feel directly at grocery stores, while the 'stag' component refers to economic stagnation characterized by rising unemployment and slower economic growth than would otherwise occur.
"We've seen the early stages of what economists call stagflation," Wolfers cautioned during the Wednesday interview. His comments came amid Trump's claims about successfully tackling inflation, which contradict current economic data.
Contradiction Between Claims and Economic Reality
Despite Trump's campaign promise to address inflation immediately upon taking office for his second term, prices have continued to rise during his current administration. The president has recently made statements asserting that "every price is down" and that "everybody knows that it's far less expensive under Trump than it was under Sleepy Joe Biden."
Wolfers directly challenged these assertions last week, calling Trump's claim "such a lie that I worry there's literally a break with reality inside the man's mind." The economist pointed to Bureau of Labor Statistics data that shows almost every category of goods or services has experienced price increases, contradicting the president's narrative.
The ongoing tariff situation presents particular concerns for Canadian consumers and businesses, as trade policies between the United States and Canada directly impact cross-border commerce and pricing. As the economic situation continues to develop, experts like Wolfers will be closely monitoring how these policies affect both nations' economic health.
