Trump’s tariffs and tax bill look like a ‘Greek tragedy’ that could tank the economy and stocks, former IMF official warns

Trump’s economic policies pose the risk of inflation and recession, says former IMF official Desmond Lachman.

He is among a chorus of experts that have expressed concern over Trump’s proposed tariffs and tax cuts.

Rising inflation and bond yields as a result of these policies could hurt stocks, Lachman warns.

Like a protagonist in a Greek tragedy, President Donald Trump is exhibiting a concerning level of hubris in his handling of the US economy, former IMF official Desmond Lachman worries.

Despite warnings from credible sources — like Fed Chair Jerome Powell, JPMorgan CEO Jamie Dimon, and BlackRock CEO Larry Fink — about what tariffs would mean for inflation and growth, and what his tax cut bill would mean for bond yields and the US dollar, Trump is doubling down on these policies, Lachman said in a June 10 post for the American Enterprise Institute, where he is a senior fellow.

Unless Trump changes course, Lachman said, he could end up reigniting inflation, pushing up long-term bond yields, further tanking the US dollar, and sending the US economy into recession.

“To Trump, these warnings are like water off a duck’s back. Instead of dialing back his tariff policy, Trump has recently raised the import tariff on all aluminum and steel imports to a staggering 50%,” Lachman wrote.

He continued: “At the same time, instead of coming up with belt-tightening revenue and spending measures to address the country’s gaping budget deficit of 6.25% of GDP, Trump is making every effort to secure the passage of his budget-busting One Big Beautiful Bill.”

So far, inflation has been tame and the labor market has held up as businesses have started to digest tariffs. But Lachman said the US economy is not out of the woods yet. Since businesses stockpiled inventory to prepare for Trump’s tariffs, their effects won’t start to show up until the second half of the year, he told Business Insider on Friday.

“The fact that you’re not seeing it in the May, June, July data, it doesn’t mean anything,” Lachman said.

Here’s the US trade deficit showing a surge in foreign goods buying from US businesses in late 2024 and early 2025.

But tariffs aren’t the only inflationary factor potentially at play. Lachman said that if you add the implications of Trump’s tax bill on the value of the US dollar as the the national debt and budget deficit grow, consumers could end up paying even higher prices. With the dollar’s value down 10%, for example, it means foreign goods are more expensive in addition to the 10% tariffs, or more, already being paid.