‘The US has become a scary place to invest,’ warns this Nobel prize-winning economist

Thursday will mark one month since President Donald Trump’s triumphant return to the White House. Already, his agenda, executive orders, and floated policy are shaping the US and global economy. With a 10 percent tariff imposed on many goods from China and a 25 percent tariff—bumped up from 10 percent—on all US steel imports, economists worry that a trade war could break out and hamper growth expectations in economies around the world. One of those economists is Nobel Prize winner Joseph Stiglitz, whose work on wages, labor, and unemployment earned him the coveted prize in economics in 2001.

Stagflation and how the US economy has avoided its effects thus far

Stagflation describes an economic environment where prices and unemployment remain elevated to the extent that they limit growth in the economy, risking recession. In the post-Covid economic recovery, the US has been able to avoid stagflation, even as inflation persisted because of historically low unemployment, which prevented a significant decrease in consumer demand.

Instability coupled with uncertainty could spook investors

That does not mean inflation has not placed many households in a worse economic position. Late last week, the New York Federal Reserve reported that credit card debt broke record levels for the fourth consecutive quarter in the final quarter of 2024. Credit card debt has ballooned by 30 percent to $1.21 trillion since late 2019, driven by high interest rates, which make paying off debt more challenging, and higher prices, which necessitate consumers to spend more on their credit cards.

Together, these two factors create debt traps for individuals whose income falls short of what would be necessary to reduce their dependence on their credit cards and begin paying back the interest they owe. With the Bureau of Labor Statistics reporting an increase of 0.5 percent in average consumer prices in January—exceeding expectations—the Federal Reserve is unlikely to reduce interest rates, meaning that the number of people caught in a credit card debt cycle could continue to rise in the coming months.

Policies that foster an environment of economic uncertainty

Additionally, in his interview with The Guardian, Stiglitz pointed to the impact Elon Musk’s Department of Government Efficiency, or DOGE, could have on companies contracted to do work for the US government. “The government has a huge number of contracts and we’re just tearing them up,” explained the economist. The Trump administration’s unwillingness to uphold contracts that they don’t see in their interest, even when they were negotiated during his first stint in the White House, like NAFTA 2.0, the US-Mexico-Canada Trade Agreement, generates uncertainty in the US market for companies considering expanding their presence there. Such high levels of uncertainty paired with higher prices in the forecast mean, at least for Stiglitz, that the “US has become [...] a scary place to invest.”

Investors could begin to reevaluate their positions as the full effect of tariffs on prices becomes known. Though Stiglitz admits that some of the inflationary pressure of tariffs will be offset by “appreciation of the exchange rate,” he notes that very few economists are arguing that those gains will be “anywhere near enough to compensate for the tariffs” the Trump administration has put on the table.

So far, as President Trump has remarked in events with the press, markets have not responded poorly to the announcement that more tariffs are coming. However, with last-minute deals, like those struck with Canada and Mexico, to avoid new tariffs, Wall Street has taken a wait-and-see approach rather than sending markets into a panic anytime the word is mentioned. However, that type of approach can make investors less bullish since there are numerous variables that they cannot account for that could have a serious impact on the viability of their investment, particularly in the short term.

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