​Economic Outlook

2025 First Quarter

The Misery of Mercantilism

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A return to Renaissance thought appeals to artists and scientists, not so much to economists. That a country forged in a revolt against tariffs would endeavor to return to mercantilism highlights the extent of change in the global economic order. Multiplying this choice is the venture away from free markets and ideas to one of state-controlled regulation. Indeed, the reign of the US as the world’s consumer of last resort is in peril, as rent-seeking dissuades consumption. The paradox is the incongruence of these policies with the global dominance of US companies, which extract monopolistic rents from foreign consumers. A return to mercantilism risks their profits and domestic consumption. Two hundred years of global growth may disappear at the whim of pen and paper.

 

 

The expectation is for an economic decline of 0.4% in 2025, below the consensus estimate of 1.5%. This level of growth will pose a dilemma for the Fed, as inflation persists in housing and higher import prices. The latter highlights the key risk:  the durability of employment as higher prices persist. The uncertainty surrounding tariffs will likely force the Fed to act, despite persistent inflation. As the Fed’s focus switches to employment from inflation, the prospect of stagflation will emerge, a politically dire conundrum indeed.

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US Economic Dashboard

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