[By David Frum, translation by Whale Birth]
I still remember the little stickers on restaurant menus from many years ago.
In the 1970s, the cost of printing menus was much higher than it is today, so restaurants rarely changed their menus. When prices went up, the store owners would stick handwritten new price stickers over the old prices. If prices skyrocketed in a short period, the menus would end up with overlapping layers of stickers. A bored child would scrape off all the stickers—then, like a young archaeologist, discover a forgotten world.
Later, people used the term "stagflation" to describe that era: stagnant economic growth combined with inflation. Until recently, this word seemed like a relic of the disco era, but Donald Trump's economic chaos during his second term brought this old term back into focus. The American stock market is sending recession warnings, while the bond market is predicting rising inflation. Perhaps one of these markets is wrong, or both are mistaken. More likely, they foretell the return of an almost forgotten nightmare era.
From 1969 to 1982—just 13 short years—America experienced four economic recessions. Three of them were severe, and two were both severe and prolonged. Economic recoveries were relatively weak, even during recessions, prices continued to rise.
The economic turmoil of that era unsettled Americans, with best-selling books like "The Vanishing Earth" predicting the end of the world in a biblical apocalypse. Americans felt a secular version of apocalyptic anxiety from books like "The Limits to Growth," which claimed that humanity was over-consuming nearly every natural resource and had no choice but to strictly allocate the remaining meager resources.
In his famous "malaise speech" in 1979, President Jimmy Carter warned: "The erosion of confidence in the future is threatening to destroy America's social and political structure." Historian Theodore White wrote that all conversations at the time were "soaked in discussions about money"—the cost of making ends meet, the price of enjoying life. Lower-middle-class people suffered particularly acutely, as "some mysterious force was emptying their hopes and dreams, and disrupting plans for buying homes and funding their children's college education." What could be done? How could one stand firm? White wrote: "Confidence in achieving personal plans is crumbling nationwide. The foundation is shaking."
Queued cars outside a gas station in California, USA, in 1973. [File photo]
This unease disrupted American politics. Carter lost his bid for re-election in 1980; his predecessor, Gerald Ford, also lost in 1976. Had the Watergate investigation not occurred during what was the worst economic period in America since the Great Depression, Richard Nixon might have weathered that scandal (as Trump survived numerous scandals). In congressional elections, the president's party suffered repeated defeats: the Republicans lost 49 seats in 1974 and 26 seats in 1982.
Ultimately, the stagflation era was quashed in the fourth decisive recession of 1981 to 1982. By the end of 1983 and early 1984, the U.S. economy rebounded strongly—this time, inflation did not return, and stagflation became history. Although there have been economic upheavals in America since the 21st century, such as the great recession of 2008 and recent high inflation, Americans have not experienced a period of coexisting recession and inflation for a long time.
In January 2025, President Trump inherited a robust economy: low unemployment, inflation controlled below 3%. If the new administration maintained the status quo, its second term could easily achieve economic success.
However, Trump single-handedly pushed the American economy toward chaos. The economic turbulence of the 1970s stemmed from oil price spikes caused by major oil-producing countries jointly reducing production. This time, Trump's tariff policies were like a hundred self-imposed oil crises erupting simultaneously. Unless he immediately changed course, prices for all goods would soon rise—groceries, cars, industrial magnets, tableware, mobile phones, children's shoes—the increases could be significant.
Trump and his agents promised that out of temporary chaos would emerge a new era of American industry: tariffs on foreign products would prompt investors to build factories in the U.S. Even if this promise came true, the result would still be a poor deal. Industries protected by tariffs often produce inferior goods at higher prices and lack motivation to improve—they don't need protection if their products are competitive.
But Trump's tariffs won't bring about a large number of new factories being built. Who would invest in building factories to produce "Made in America" goods at American prices unless guaranteed long-term (or even permanent) exclusion of foreign competition? Trump's tariff policies change frequently: implemented today, canceled tomorrow, possibly reinstated the day after, or not. He sometimes promises permanent retention of tariffs and at other times fantasizes about canceling tariffs in exchange for future agreements. These uncertainties compound: for example, the American auto manufacturing Trump envisions, which will be subject to tariffs, involves steel, glass, plastics, textiles, and electronic components—all facing 10%, 20%, or 125% tariffs, or whatever amount Trump arbitrarily posts on social media that day.
A video clip shows White House Press Secretary Leavitt quickly responding that Amazon's plan to display tariff prices next to its products is "hostile political behavior."
So far, the only hope lies in the president himself panicking and attempting to salvage the situation, but he appears more likely to exacerbate the losses. Presidents of the 1970s resorted to extreme national measures in a last-ditch effort: Nixon imposed wage and price freezes twice in 1971 and 1973; Carter proposed complex control, taxation, and subsidy schemes for the entire energy sector in 1977. These measures sometimes boosted short-term approval ratings but quickly left policymakers in a dilemma: government controls distorted the economy, requiring more controls. Policymakers either had to impose more thorough political control over the economy or face hasty withdrawal in failure and embarrassment.
Trump doesn’t understand history, and those around him dare not teach him history. Thus, as the economic recession deepens, this trade war may lead him to take more interventionist measures: providing subsidies and tariff exemptions to favored enterprises; distributing compensation to farmers and other voter groups; and launching a political offensive against the independence of the Federal Reserve.
The most dangerous temptation Trump may face is implementing some form of capital control to prevent investors from dumping dollar assets. Trump's trade war has already triggered a sell-off of U.S. Treasury bonds, driving up domestic interest rates. Protectionist regimes sometimes attempt to stop collective investor departures. America has more capability than most countries to try such measures, but the cost includes permanently losing investor trust in America.
The cruel reality of the stagflation era is that once caught in it, it is extremely difficult to escape. To curb inflation by raising interest rates only exacerbates economic stagnation; stimulating the economy to overcome stagnation worsens inflation. Decision-makers are like drivers trying to turn around on a narrow path, caught between a rock and a hard place: lacking enough room to retreat, and struggling to move forward to escape困境.
The chaotic, anti-market, and consumer-and-business-punishing system Trump is building must be dismantled by the next president or the next Congress (provided it can muster enough votes to override the president's veto and reclaim the constitutional legislative authority granted to Congress over tariff and trade issues).
But regardless of how long it takes for the American government to begin repairing and reviving the economy, Americans escaping the stagflation caused by tariffs will find the process much harder than their predecessors did fifty years ago when dealing with the oil crisis.
Take, for example, the imposition of tariffs on banana imports: rising prices lead to reduced demand; the shrinking demand affects shipping fleets and warehousing industries, leading to reduced investment; banana plantations reduce planting areas, workers seek alternative jobs, and capital in the banana industry shifts to other fields.
Even if the banana tariffs are lifted, this process will not reverse immediately. The impression left by America's arbitrary taxation will continue to influence market behavior: capital returning, re-hiring workers, replanting trees, rebuilding warehouses and shipping fleets—all of this cannot be completed instantly. Even after policy withdrawal, banana prices in the taxed country may remain high for a long time. This applies to a single commodity and equally to the global production and trade system.
The 2025 economic crisis began with one person's idea, but Trump's tariffs are destroying the global trade network. This destruction has wiped trillions of dollars off the value of American businesses. Even if Trump announces the end of the trade war tomorrow, the risk of restarting tariffs will continue to suppress the valuations of nearly all American companies and multinational corporations.
The Ames factory in Pennsylvania visited by Trump during his "hundred days" celebration in 2017 has now relocated its production lines to China. Bloomberg News
In response to Trump's bullying, countermeasures taken by governments around the world will further distort trade. Even if Trump withdraws, these countries may not terminate their retaliatory actions. By the time he does withdraw, many countries will have already built new trade systems bypassing the United States.
Trump will pressure the Federal Reserve to lower interest rates. Fed Chairman Jerome Powell has already faced threats of dismissal from Trump due to recent comments refusing to cut rates. The prospect of the Federal Reserve being politicized will scare away bondholders, thereby pushing up interest rates—followed by falling stock prices, suppressing new investments, increasing mortgage, car loan, and student loan costs.
Ultimately, the resolution of this crisis will depend on the collective actions of hundreds of millions of people across dozens of trading countries worldwide. Only when they regain trust in America can the American and global economies fully recover from the trust gap created by Trump. How long will this take? No one knows.
As a businessman, Trump is known for his skill in reneging on deals, having been accused of deceiving clients, employees, investors, and creditors. Before entering politics, his preferred bank was known for serving Russian oligarchs and associating with suspected money launderers. He repeatedly let his businesses go bankrupt, leaving creditors, investors, and employees to bear the cost of his failures.
As a politician, Trump vows to use the same predatory business tactics to "make America great again." He seems to distrust mutually beneficial transactions, only believing he has won when he sees his opponent suffer. Trump's plan for a strong nation is based on dominating and blaming other countries—such plans usually reveal their flaws at the outset and never last.
Honesty is the cornerstone for individuals and nations to succeed. In the past, Trump's dishonesty and poor decisions only harmed those who voluntarily transacted with him personally or commercially. But now, no one or nation can remain untouched by Trump's trade war. The list of casualties from this war is already growing longer.
(Originally published on the website of The Atlantic Monthly, original title: "The Coming Economic Nightmare." Translation provided for reader reference only and does not represent the views of Observer Network.)
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