Trump’s tariffs will destroy U.S. economy, former Treasury secretary predicts

Former Treasury Secretary Janet Yellen on Monday described President Donald Trump’s tariff policies as “unclear and not at all sensible.” She warned that prolonged trade conflicts will destroy global confidence in the world’s largest economy.

Yellen pointed out that China appears ready to “de-escalate this conflict” and indicated that continued tariff escalations could effectively decouple the two major economic powers.

Yellen, who also served as chair of the Federal Reserve under President Obama and into the early part of the Trump administration, said recent bond market turmoil and a weakening dollar signaled “a loss of confidence,” though she does not believe the Federal Reserve is at a point where it needs to intervene.

Yellen expresses confusion about Trump tariffs

In an interview on Bloomberg Television’s “Balance of Power,” Yellen said the removal or reduction of certain tariffs might help, but she cautioned that “we’re in a world of tremendous uncertainty.”

“I’m confused about what the Trump administration will be looking for with Vietnam for example,” she said, referencing tariffs that were supposed to be reciprocal but instead were often based on bilateral trade deficits. “We actively encouraged Vietnam to begin to produce goods that we were dependent on China for. For national security purposes, we wanted diversification of supply chains.”

Yellen added that tariff levels have become “almost prohibitive to trade,” and she expects China would be willing to remove its trade barriers if the United States would do the same. She warned that if the current tariffs stay in place, American households would bear “very significant burdens,” further complicating economic recovery. Even so, Yellen emphasized that the U.S. economy remains strong and that, at present, the Fed is unlikely to intervene.

“If real financial stability concerns were to arise, I believe the Fed would think about using its liquidity facilities as it did at the beginning of the pandemic,” she said. “But we’re not at that point yet.”

Markets are acting strange, with investors losing interest in the U.S. economy

In another interview on CNBC’s “Squawk Box,” she described “a very unusual pattern” in financial markets over the previous couple of weeks. She noted that, while there is no sign of liquidity drying up entirely, the developments point to “a loss of confidence in U.S. economic policy.”

“The safety of bedrock financial assets is really very worrisome,” she said, referring to the sharp sell-off in Treasurys last week that came amid fears of weaker foreign demand for U.S. debt.

“Normally, when times are chaotic and uncertainty is high, there’s a desire to invest in safe assets,” Yellen said. “But U.S. Treasury yields went up, and that would typically attract capital inflows, boosting the dollar. Instead, the dollar declined, and U.S. Treasury yields rose.” She interpreted that as a sign investors might be starting to “shun dollar-based assets and calling into question the safety” of what she called the underpinning of the global financial system.

“Things have been just chaotic,” Yellen said on CNBC. “The reciprocal tariffs put on and paused … This is really creating an environment in which households and businesses feel paralyzed by the uncertainty about what’s going to happen, it makes planning almost impossible.”

She repeated her view during a separate CNN interview on Friday, calling the tariffs “the worst self-inflicted policy wound I’ve ever seen in my career inflicted on our economy.” She said they are “doing immense damage” and added that the confusion surrounding their structure and timing only makes the situation more challenging for businesses and consumers alike.

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