Trump-honored economist says tariffs causing scariest period in his lifetime
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President Trump presents the Presidential Medal of Freedom to Arthur Laffer in the Oval Office in 2019. Photo: Oliver Contreras/For The Washington Post via Getty Images
Art Laffer, a conservative economist once praised by President Trump as brilliant and bold, blamed White House trade policy for the "most scary, in-flux" economic moment of his life.
Why it matters: Laffer, widely regarded as the father of supply-side economics, warned that tariffs and trade barriers could wreak havoc on America's economy.
What they're saying: "I don't know how anyone looking at the facts could argue that protectionism doesn't create downturns," Laffer told Axios in an interview on Wednesday, a few blocks from the White House.
- "The more protectionism there is, the greater the downturn. Reducing tariffs and protectionism causes a boom in the economy," he added.
Between the lines: Laffer is optimistic that Trump — who he called "a great negotiator" and the "single best president of his lifetime" — will notch trade deals and reduce tariffs.
- But the former Reagan-era economist is worried about the economic damage in the interim.
- "You will find out with whether I'm right to be scared or right to be hopeful probably in 90 days — there's not a lot of time," Laffer said, referring to the freeze on reciprocal tariffs until early July.
- "Once you screw around with supply chains, production facilities, all of that, it's very hard to reverse that," he said. "What you got here is something that is very time sensitive."
State of play: The White House in recent days has softened its tone on trade as financial markets stumbled — notably with China, which faces a tariff of 145% on U.S.-bound goods, the steepest rate of any trading partner.
- But Trump hinted on Wednesday that the U.S. might bring that rate down, even if China keeps its retaliatory rate on U.S. goods in place.
- "I get along very well with [Chinese] President Xi and I hope we can make a deal," Trump said. "Otherwise we'll set a price and hopefully they'll come here and they'll contribute. And if they don't, that's okay," he added, referring to tariffs.
The big picture: Laffer has previously warned about the economic damage of Trump's tariffs.
- In a recent paper — first reported on by the Associated Press last month — Laffer said that Trump's 25% tariff on autos risked "causing irreparable damage to the industry."
The intrigue: In a more recent analysis seen by Axios, Laffer said that tariffs cost jobs and crush productivity gains.
- "The collapse in total commerce as a result of tariffs leads to domestic tax revenue shortfalls and prompts domestic governments to raise tax rates everywhere," Laffer wrote in a note from earlier this month.
- "This perverse government response is a sure-fire way of causing an economic bust," Laffer wrote.
Flashback: In 2019, Trump awarded Laffer the Presidential Medal of Freedom, the nation's highest civilian honor, for his work on his eponymous tax cut theory that helped define Ronald Reagan's legacy.
- The "Laffer curve" suggested that lower taxes could generate stronger growth that would lead to higher tax revenues, while too-high tax rates would have the opposite effect.
- Trump praised Laffer's theory for helping shape the 2017 tax cuts, provisions of which expire this year.
The bottom line: Trump's trade policies put typical free-trade loving, conservatives in an awkward position — torn between support for the president and hatred of tariffs.
- Laffer says he hopes that Trump focuses on economic policies that are "free-market and capitalistic. Times of crisis are when free markets are needed most."
