Donald Trump’s tariff threats have made the US “a scary place to invest” and may unleash stagflation, the Nobel prize-winning economist Joseph Stiglitz has said.
“It risks the worst of all possible worlds: a kind of stagflation,” Stiglitz said in an interview with the Guardian.
He argued that despite optimism about the US economy at the turn of the year, the uncertainty created by Trump’s on-off tariff plans and the president’s apparent contempt for the rule of law would deter investment.
“If you’re a corporate in the US or in Europe, do you think you have a global market, or do you have just a European market? Where do you locate your factories?” he said.
He highlighted Elon Musk’s efforts to slash government departments without congressional authority, and Trump’s disregard for contracts – including the trade pact he struck with Canada and Mexico in his first term – among damaging signals for investors considering the US as a destination.
“The government has a huge number of contracts and we’re just tearing them up. How much risk do you want? The US has become, I would say, a scary place to invest,” he said.
Stiglitz argued that the uncertainty was likely to slow economic growth, while at the same time Trump’s tariffs – and retaliation by other countries – would drive up inflation.
The prospect of rising inflation in the world’s largest economy has led investors to pare back bets on the US Federal Reserve cutting interest rates since Trump’s return to office, amid mounting concern over the fallout from a global trade war.
Stiglitz, a Columbia University professor and former World Bank economist who served as chair of Bill Clinton’s council of economic advisers, said the Fed was “clearly worried” about the inflationary effects of Trump’s policies, which could lead it to raise interest rates.
“Almost all economists agree that the tariffs will increase prices. How much it will increase prices is a little bit affected by the magnitude of the appreciation of the exchange rate, but all economists think that the extent of the appreciation of the exchange rate won’t be anywhere near enough to compensate for the tariffs.
“I could certainly see a scenario where we get to stagflation – we get inflation, and a weak economy,” he said. “I cannot see a really robust economy, because I just see the global economy suffering so much from the uncertainty that Trump poses.”
Scott Bessent, the US Treasury secretary, has suggested the administration wants to bring down 10-year US Treasury yields, an important interest rate, which would have a knock-on effect across global markets. Lower Treasury yields would make it cheaper for Washington to borrow.
But Stiglitz suggested the only way the president’s policies would positively contribute to that goal was by running the US into the ground. “The inflation from the tariffs is going in the wrong way, and the only thing that is going in the right way for Bessent is his efforts to crater the economy,” he said.
“In supporting Trump’s economic policies, [Bessent] is helping to get the yield curve down by crashing the US economy – not a good policy, I would say.”
