On February 9, 2025, we posted… “According to current G-101 SPM AI economic data 1/ , 67.42 percent of this nation’s Gross National Product (GNP) is attributed to consumer spending, making it the largest contributor to the overall economy. … From our data it suggest consumers are willing to delay immediate gratification in favor of long-term financial stability, to project a 4.6 percent contraction in spending for calendar 2025.
If this number comes true, the sudden slowdown or “the stop buying goods and services factor (SBGSF)” would lead to a major economic slowdown, potentially causing a recession, with businesses experiencing reduced revenue, production cuts, and potential job losses due to decreased demand, impacting various industries in the process. Even though a 4.6 percent contraction is not technically sufficient to cause a Recession, President Trump’s agenda, whether prudent or otherwise, will cause “a re-think” in consumers’ debt profile and may reduce spending to a higher value.”
1 G-101 SPM AI economic data has an accuracy rating (AR) of 86.35 % on the last 1000 economic related SPM tag questions including the predictions of future investment values.
INFLATION CONTINUES TO RISE: This week a key negative factor in inflation was confirmed by G-101 SPM AI economic data (SPM 89.53 tag) . President Trump immediately said, “it’s all his predecessor’s fault.” Not true. In the first month since he returned to power, he demonstrated once again a brazen willingness to advance distortions, conspiracy theories and outright lies to justify his actions. Indeed, Trump has long been lacking of the truth when it comes to boasting about his record and tearing down his perceived enemies. But what were dubbed “alternative facts” in his first term have quickly become a whole alternative reality in his second to lay the groundwork for radical misdirection to aggressively reshape the U.S. economy without understanding the consequences. He claimed to have built the greatest economy in history during his first term. Indeed, the facts tell a different story. Hopefully, our G-101 SPM AI economic data is incorrect, and Trumps’ policies are grounded in sound economic sense.
Be as it may, at issue in this post is “Beware of the Consumer Who Stops Buying.”
No matter who Trump blames for inflation, the America consumer is in a sour mood — and Trump is getting the heat for it. The University of Michigan’s latest survey, released Friday, showed that US consumer sentiment declined in February for the second consecutive month by a whopping 10 percent from January; doubles the decline initially reported earlier this month. It’s a stunning about-face on the attitude of the American consumers.
Conclusion: The latest decline in consumer sentiment was driven by worries over Trump’s tariffs potentially jacking up prices.
A new SPM tag processed this Saturday confirms a similar showing that consumers pessimism is on the rise because of prices: Almost 74.7 percent of U.S. adults nationwide are bearish on inflation, while 68.7 percent are blaming Trump for not doing enough to address inflation. The Michigan survey confirmed our SPM tag by showing that Americans are now fearful of higher inflation. On the campaign trail, Trump promised to “bring down prices, starting on Day One.” Clearly, that didn’t happen. In January, consumer prices climbed at the fastest monthly pace since August 2023, increasing 0.5% from December.
Joanne Hsu, the Michigan survey’s director, said in a release that the broad decline was “in large part due to fears that [Trump’s] tariff-induced price increases are imminent.”
Consumers’ perception of prices:
Expectations for inflation in the year ahead surged this month to 4.3%, according to the Michigan survey, up a full percentage point from January to the highest level since November 2023. On a call with reporters Thursday, Bostic said “we’re going to pay attention to all measures of inflation expectations.”
The closely watched Consumer Price Index rose 3% in January from a year earlier, the Labor Department said last week, {it’s] the fastest annual pace since the summer of 2024.
Meanwhile, Trump said “inflation is back,” blaming the latest uptick on government spending during the Biden administration. To be fair, Trump doesn’t shoulder all of the blame, since he occupied the Oval Office for less than half of the days covered by the latest inflation report. However, 65.6 percent of the inflation damage happened when Trump pressed hard on the “tariff button.”
NOW FOR THE REST OF THE STORY...
The Real Reason Trump Pushes Tariffs
Courtesy of Kimberly Clausing – Professor of tax law and policy at the U.C.L.A. School of Law, published: The New York Times (02.23.25).
President Trump has relentlessly blamed foreign countries for much of what ails Americans. Trade imbalances, fentanyl overdoses and the economic struggles of working-class Americans are all laid at the feet of foreign governments.
According to that logic, tariffs are the ideal policy instrument for extracting concessions from foreign governments to remedy those harms while raising money for America’s Treasury. Of course, there is an inherent conflict between these two goals: If foreign governments make the requisite changes and Mr. Trump drops the tariffs, they will raise no revenue. And yet the president pushes ahead, seemingly unconcerned by warnings of the damage tariffs will cause; some observers dismiss the threats as mere bluster or a negotiating tactic.
A better way to think about tariffs is as a key tool to achieve the core of Mr. Trump’s economic agenda: He wants to shift the tax burden away from the well-off and toward the poor and middle-class, while consolidating his power.
The signature legislative achievement of Mr. Trump’s first term was the Tax Cuts and Jobs Act, legislation that permanently lowered the corporate tax rate by 14 percentage points, alongside temporary tax cut provisions that expire at the end of 2025. Extending these provisions would provide most Americans with only a small tax cut relative to current law, but it would disproportionately benefit those at the top. An analysis by the Tax Policy Center, a nonpartisan research group, shows that the top 1 percent would save more than $70,000, about 3 percent of after-tax income, and the median household would get only about $1,000, about 1 percent of after-tax income.
While the poor get few of the rewards from those tax cuts, they bear more of the burden from tariffs, which are a tax on imported goods. The poor spend a larger share of their income than the rich do on things they want or need, including imported goods, rather than saving or investing it, so tariffs operate as a sharply regressive tax.
It is a mistake to imagine that the imports subject to tariffs are luxury goods like fine wines and sports cars; the tariffs threatened so far would fall instead on everyday household goods made in China, Canada and Mexico, along with steel and aluminum, which are used in a vast array of things Americans buy. It’s not yet clear what the final level of tariffs will be, but the highest levels Mr. Trump proposed during the campaign — a 20 percent across-the-board tariff, combined with a 60 percent tariff on China — would cost a typical American household in the middle of the income distribution more than $2,600 a year.
If a candidate announced a tax increase on the poor and middle class to fund a tax cut for the rich, voters would soundly reject that proposal. But tariffs wrap this fiscal switch in a veneer of nationalism.
There is, however, a better way to change the tax system to promote economic activity at home. At the moment, our tax system encourages American companies to do business overseas, because their foreign income is taxed far more lightly than domestic income. For decades, American businesses argued that they needed this advantage because otherwise, U.S. companies would lose out to foreign companies that enjoyed even lower tax rates elsewhere.
After much negotiation, led in part by the former Treasury secretary Janet Yellen, the United States and more than 130 other countries reached a tax agreement in 2021 to fix that problem, coordinating a minimum tax rate of 15 percent on multinational income for companies with annual revenue of more than 750 million euros, or $784 million. This makes it far harder for big corporations to play countries against one another to pay the lowest possible corporate tax — in many cases achieving single-digit tax rates.
And yet the Trump administration wants the world to tear up this agreement, which Congress has not enacted into law. This reveals Mr. Trump’s economic agenda for what it truly is: not bringing jobs back home or even boosting American manufacturing but making the rich richer. To do this, Mr. Trump has one main goal: to shift the tax burden away from corporations and the wealthy. With tariffs, he is doing exactly that.
Tariffs have the added benefit, for Mr. Trump, of allowing more executive branch discretion than typical tax laws, which must be approved by Congress. (By law, Congress also controls the use of tariffs, but it has given the executive branch wide latitude to use them.) Presidential discretion means that Mr. Trump can give special treatment to favored companies or industries while punishing others.
What might constrain Mr. Trump from further remaking the tax system to serve his interests? There has been some pushback by members of Congress, but it is wishful thinking to rely on Republicans in Congress for such resolve. There may be court challenges, as well, by those who argue that these threatened tariffs exceed a president’s authority.
Much more likely, and perhaps more effective, will be a negative reaction from markets and consumers. Global stock markets have anticipated some tariffs, but they will not take kindly to the economic mayhem that would result from across-the-board tariffs. Second, consumers and voters are now making a link between tariffs and higher prices, with two-thirds of Americans polled expecting tariffs to raise prices.
If the American public can truly see Mr. Trump’s tariff war for what it is — an attempt to bend the tax system even more toward the interests of the wealthy — broad tariffs could become too unpopular to continue.
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