American consumers are finally feeling more confident. But they should brace for an "initial severe overreaction in the economy" if Donald Trump wins a second term.
That's according to an X post Tuesday that Elon Musk agreed with, predicting how Trump's mass deportations and Musk's proposed $2 trillion cut to federal spending would play out. The billionaire executive also said the effort would lead to "temporary hardship" in a virtual town hall last Friday.
What's interesting is that Musk seems to acknowledge what economists have largely been warning the American public about when it comes to Trump's policies, specifically his tariffs, grab bag of tax breaks, and mass deportations.
Some experts, though, are not too worried about the worst of the potential fallout, largely because they bet Trump won't be able to stomach the economic backlash to his own policies.
"Trump's going to do it until he doesn't do it," Michael Pachter, a managing director at Wedbush Securities, said when talking about Trump's tariffs. "If he gets elected, tariffs will last about a month, the economy will go terrible. Every adviser he has will tell him this is stupid and they'll stop it."
"So it really won't be a long-term thing," he added.
That's a big gamble when it's Americans' financial well-being at stake.
These are the words economists across the policy spectrum have used to describe the not-so-rosy outlook for the economy if Trump follows through on several of his policies, some of which he doesn't need Congress to approve.
In short order, mass deportations of undocumented workers would massively disrupt the workforces of major industries, including agriculture, construction, services, and manufacturing. An acute labor shortage would thrust prices higher for products these industries produce.
Musk's promise to slash federal spending by $2 trillion as head of Trump's new Department of Government Efficiency comes with its own pain. Last year, the US spent $6.1 trillion, so Musk is looking to reduce that by a third. What would he cut first?
Let's take a look.
Medicare and Social Security? That would account for the whole $2 trillion and then some. Trump's tax, immigration, and tariff policies are already expected to hasten the depletion of the reserve funds for both programs.
Defense? Nope, Trump plans to increase spending there.
Maybe economic security programs such as Supplemental Security Income, food assistance, and unemployment insurance? Surely, those will be needed if a recession happens.
What's not accounted for: the impact of Trump’s policies on the federal deficit — nearly $8 trillion by one estimate — and the cost of his proposed tariffs.
Companies will try to pass as much of the 60% tariffs on Chinese imports and the 10%-20% tariffs on all other imports on to their consumers. They're already planning on it, according to a report Wednesday in the Washington Post.
Trump and his advisers know this. Why? Because he delayed implementing tariffs during his first term until after the Christmas shopping season "just in case some of the tariffs would have an impact on US customers," Trump said at the time.
Slash now, worry later. Elon Musk speaks before Republican presidential nominee former President Donald Trump at a campaign rally at Madison Square Garden, Sunday, Oct. 27, 2024, in New York. (AP Photo/Evan Vucci) ·ASSOCIATED PRESS
That's the hesitation that maybe some are betting on when, as the X poster predicted, the "markets will tumble."
"I'm guessing that the stock market tanks. I am guessing that Trump gets strong market signals that this is a very bad idea and he changes his mind," and the fallout from his policies "doesn't actually come to pass," Wendy Edelberg, a senior fellow in economic studies at the Brookings Institution, a centrist think tank, told me earlier.
That could end up being wishful thinking.
Trump, in fact, followed through on his tariffs in his first term, and this time around "he's going to surround himself with a bunch of people who are just going to do what he thinks should be done," Desmond Lachman, a senior fellow at the conservative-leaning American Enterprise Institute, told me previously.
"There's going to be no restraints on him."
Fear not, there's a happy ending, according to the original X poster, who has 173,600 followers and joined the platform six years ago. After the initial economic pain, "there will be a rapid recovery to a healthier, sustainable economy. History could be made in the coming two years." Just in time for the midterm elections.
"Sounds about right," Musk posted in response.
Two years seem like an awfully long time for the economy and the American people to suffer. The Great Recession lasted one and a half.
Do voters realize this is the plan? They should. If Trump wins next week, their financial futures are on the line.
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on X @JannaHerron.
