- Instead of an advanced economy that leads the world, the US is looking more like a troubled emerging market, according to a former IMF official, who also warned that there’s no bailout big enough that could put things back on track or shield the rest of the global economy from the repercussions.
The world’s biggest economy may be headed for some quantitative speed bumps as growth slows, but a former International Monetary Fund official warned that a drastic qualitative shift also is underway.
In fact, the changes are so fundamental that the US is now exhibiting surefire traits of an emerging-market economy in trouble, according to Desmond Lachman, a senior fellow at the American Enterprise Institute and a former deputy director of the IMF’s policy development and review department.
“It pains me to say it, but the United States is showing many of the warning signs,” he wrote in a Project Syndicate op-ed on Friday. “Worse, by dint of its size, America’s actions have a much greater impact on the world economy than those of any run-of-the-mill emerging market.”
Excessive tariffs
First, Lachman pointed to excessive use of tariffs, which stifle competition, increase inflation, curb growth, and fuel corruption by giving government officials the power to grant exceptions.
That’s as President Donald Trump has imposed tariffs on Canada, Mexico, China, steel and aluminum, while threatening duties on Europe, autos, chips, and pharmaceuticals. He has also reaffirmed April 2 as “liberation day,” when reciprocal tariffs will take effect.
Dartmouth College economist Douglas Irwin has warned that the reciprocal tariffs in particular “would fill the swamp, not drain it,” as lobbying pressure for exemptions to potentially millions of individual rates would be enormous.
On Friday, Trump hinted at “flexibility” on reciprocal tariffs and that acknowledged that he wanted to give US automakers a break by granting a one-month reprieve on Canadian and Mexican duties. But he indicated reluctance to offer more exceptions.
Massive debt
Second, Lachman said another sure sign of a troubled emerging-market economy is large budget deficit and massive debt. US debt held by the public is already at 99% of GDP and will soon smash the record high set in the immediate aftermath of World War II.
To be sure, that debt has been accumulating for generations under multiple presidents of both parties as well as members of Congress passing budgets with huge deficits.
But the latest tax-cut plans will make the situation worse. The nonpartisan Congressional Budget Office said Friday that if the Tax Cuts and Jobs Act was extended permanently, debt will soar past 200% of GDP in a few decades.
“Judging by Trump’s proposed tax cuts, the typical emerging-market economy’s budget deficit may soon pale in comparison to that of the US,” Lachman wrote.
Oligarchs with political power
Third, when a handful of oligarchs has outsize political influence or wield power directly and when the government erodes confidence in public institutions, that’s another red flag.
Lachman pointed to billionaire Elon Musk, who used his fortune to help return Trump to the White House and is now a close adviser. Meanwhile, wealthy investors from Wall Street are also in the administration, such as Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick.
While critics have sounded alarms on conflicts on interest, Trump has said Musk will not be involved in decisions that could benefit his various companies. On Friday, Trump said Musk would not see top-secret information on a potential war with China, and mentioned his business interests in the country could make him “susceptible.”
Erratic policymaking
Fourth, Lachman flagged erratic economic policymaking and highlighted the on-again, off-again nature of Trump’s tariffs in addition to the mass firing and rehiring government workers who were later deemed too essential to let go.
“No wonder the stock market has been swooning: investor and consumer confidence is tanking,” he said.
Lutnick has even reportedly told friends in private he’s “not thrilled” with Trump’s whipsaw approach to tariffs, though the White House says he’s a staunch defender of Trump’s economic agenda.
Meanwhile, the Energy Department even scrambled to bring back nuclear weapons specialists who were laid off by Musk’s Department of Government Efficiency.
Waning confidence in the rule of law
Confidence that the rule of law prevails in America was a major advantage that the US had over emerging markets, but that seems to be slipping too, Lachman said.
He cited the administration’s repeated challenges to court rulings and conflicts of interest among officials.
This past week, Trump called for the impeachment of a judge who blocked deportation flights under the Alien Enemies act of 1798. That drew a sharp rebuke from Supreme Court Justice John Roberts in a rare statement.
The White House didn’t immediately respond to a request for comment on Lachman’s claims that the US is resembling an emerging market in trouble.
But he warned that the rest of the world will also suffer as the US economic outlook dims amid these changes.
“Since the US remains the world’s largest economy, economic damage on the scale that Trump is inflicting will invariably cast a long, dark shadow—and there will be no IMF bailout or structural adjustment plan that can put things back on track,” Lachman said.
