'US Scholars Criticize Trump... Warn of "Inflation Rise and Global GDP Shock" [American Economic Association 2025]'

2025 AEA Annual Meeting
Outlook on Trump’s Second Term Policy Impact
"Greatest Risk to US Economy is Trump Uncertainty"
"Supply-Driven Inflation Rise... Chaos Like COVID-19"
"Trade Disruptions Could Reduce Global GDP by 9%"

"The biggest risk to the US economy this year is the uncertainty of Trump’s policies, including tariff hikes, immigrant deportations, and fiscal deficits." (David Card, Nobel Laureate in Economics and Professor at UC Berkeley)

"Global trade disruptions could reduce the world’s real Gross Domestic Product (GDP) by up to 9%." (Philip R. Lane, Chief Economist at the European Central Bank (ECB))

The '2025 Annual Meeting of the American Economic Association (AEA)' held from the 3rd to 5th (local time) in San Francisco, USA, resembled a 'Trump criticism forum.' Global scholars warned in unison that the uncertainty itself posed a risk to both the US and the global economy, as they forecasted how the policies of Donald Trump’s second administration, launching on the 20th, would shake the global economic and trade landscape. Concerns poured in that Trump’s second term tariff and immigration policies would push inflation back up, and that accelerated protectionism would deliver a severe shock to global economic growth.

"The Biggest Risk to the US Economy This Year is Trump’s Uncertainty"…Concerns Over Supply-Driven Inflation

David Card, Professor at UC Berkeley. San Francisco - Special Correspondent Haeyoung Kwon

David Card, Nobel Laureate in Economics and Professor of Economics at UC Berkeley, told Asia Economy, "The three biggest risks to the US economy this year are Trump’s forced immigrant deportations, tariff hike uncertainties, and fiscal deficits."

He warned that Trump’s tariff policies could raise import prices, and immigration policies could increase labor costs, thereby driving inflation up. However, he predicted that it would "take some time" before the inflationary impact of immigrant deportations becomes visible.

Professor Card also expressed concerns about the overflowing fiscal deficit in the US. He said, "The US government is currently facing a massive fiscal deficit, and that deficit will grow. The key question is whether Trump’s second term, which is pushing for tax cuts, will tolerate the expansion of the fiscal deficit or reduce other expenditures such as social welfare programs."

Kimberly Clausing, Professor at the University of California. San Francisco ? Special Correspondent Haeyoung Kwon

Kimberly Clausing, Professor at the University of California and former Deputy Assistant Secretary of the Treasury under the Biden administration, also pointed out in the 'Trump Administration Economic Policy' session that "Trump is promoting policies that cause inflation, such as tariff hikes, immigration restrictions, expansionary fiscal policy, and challenges to the independence of the US Federal Reserve (Fed)."

She forecasted, "Trump’s policies will restrict supply across the economy and consequently raise prices," adding, "It is highly likely to cause disruptions similar to those seen during the COVID-19 pandemic." In particular, she warned that large-scale deportations of undocumented immigrants would severely damage consumption and economic growth rates beyond just raising inflation. Professor Clausing said, "Immigrants are not only labor providers but also consumers. The scale of deportations matters; if there is a scenario where 8 million immigrants are deported in a day, it would cause a sharp decline in US employment and GDP, resulting in very serious economic consequences."

Claudia Goldin, Harvard University Professor and 2023 Nobel Laureate in Economics, also told Asia Economy, "Most people believe that imposing tariffs will create more losers than winners," suggesting that Trump’s second term trade policies could cause side effects such as rising inflation.

Professor Claudia Goldin of Harvard University. San Francisco - Special Correspondent Haeyoung Kwon

Global GDP Could Decline by Up to 9% Due to Trade Barriers... "Trump Expected to Pressure for a Weak Dollar"

Concerns were also raised about the impact of Trump’s protectionism on global economic growth. It is expected that the collapse of the multilateral trade system will accelerate geopolitical divisions and expand economic uncertainty.

Philip R. Lane, Chief Economist at the European Central Bank (ECB), analyzed the economic repercussions of extreme protectionism in various scenarios during the 'Global Macroeconomics and Policy Outlook' session. If trade and economic cooperation between geopolitical blocs show a moderate decoupling pattern, global real GDP is estimated to decline by 2%. In a full decoupling scenario where trade flows are effectively halted, the decline could reach 9%. The spread of protectionism is expected to severely damage global economic growth.

Shafat Yar Khan, Professor of Economics at Syracuse University, predicted, "The US-China trade war will act as a negative supply shock for the US, increasing production costs," and added, "China will experience a demand shock with falling wages and reduced consumption, making it difficult to generate domestic consumer demand." He further analyzed, "Because trade accounts for a large portion of China’s economy, the trade war will impose greater costs on China than on the US."

Professor Morris Opsfeld, UC Berkeley. San Francisco - Special Correspondent Haeyoung Kwon

Maurice Obstfeld, Professor at UC Berkeley, predicted that Trump would eventually resort to the 'weak dollar' strategy to resolve the trade deficit.

He argued, "Even if Trump’s second term raises tariffs, the effects on reducing the trade deficit or revitalizing manufacturing will be minimal," and claimed, "Tariff imposition causes dollar appreciation, which worsens the trade deficit." He added, "Ultimately, Trump’s focus will shift to a weak dollar," forecasting that the US might pressure trading partners to devalue their currencies.

It is explained that since the expected tariff hikes in Trump’s second term will fail to reduce the trade deficit, a so-called 'Mar-a-Lago Accord' for dollar devaluation could be reached. In 1985, the US signed the 'Plaza Accord' with Japan, Germany, France, and the UK to artificially lower the value of the US dollar against major currencies. There is speculation that a second Plaza Accord could be formulated at Trump’s Mar-a-Lago resort in Florida.

Jason Furman, Professor at Harvard University. San Francisco=Special Correspondent Haeyoung Kwon

Jason Furman, Harvard University Professor and former Chairman of the White House Council of Economic Advisers under the Obama administration, told domestic reporters, "I hope Trump’s trade policy focuses only on China and does not choose to fight with other countries worldwide," expressing concerns that it could deliver a major shock to the US and global economies. He emphasized, "(Large-scale tariff policies) are unjust."

However, Professor Furman noted that since Trump views the stock market as one of the main measures of economic policy success, "We need to watch whether Trump will continue with these policies (such as tariffs) or abandon them if the stock market reacts negatively."