Economist Mohamed El‑Erian warns that President Donald Trump's trade and tariff regime has set the U.S. up for one of two extremes: either a “Thatcher‑Reagan era on steroids,” or “Jimmy Carter's stagflation all over again,” and he puts the odds at 50‑50.
What Happened: The former CEO of fixed income giant PIMCO says everyone inside and outside the Trump administration broadly agrees that the economy is in for a “bumpy journey.” The disagreement, he says, “is on the destination,” while speaking on MSNBC’s Velshi on Sunday.
El-Erian says there are two views on this, one is the administration’s view, that we will emerge from this with a fairer trading system, where the rest of the world reduces tariff and non-tariff barriers, while also taking responsibility for their own defense.
He also adds that we will emerge with an “unleashed private sector that takes advantage of innovations,” and a “slimmed down government” that reduces the deficit. El-Erian calls this optimistic view “Thatcher-Reagan on steroids.”
The other view, he says, is getting stuck in stagflation, adding that this is going to be “Jimmy Carter all over again,” referring to the period in the 1970s, when the U.S. economy experienced high inflation and low economic growth, during the Presidency of Jimmy Carter.
“We are likely to see high unemployment, high inflation, and the defragmentation of the international system,” he says, referring to the latter scenario, before adding that “it’s a 50-50 proposition.”
Why It Matters: El-Erian has repeatedly warned of the stagflation risk to the U.S. economy stemming from the tariffs, and this was even before the blanket reciprocal tariffs imposed on ‘Liberation Day.’
There have been several bullish takes on the tariffs in recent weeks, with Ark Invest’s Cathie Wood saying that “they may have been necessary.”
This was followed by renowned supply-side economist Arthur Laffer, who criticized the tariffs, but also highlighted the positive changes they can bring about in global trade, before lauding Trump’s negotiation style, and espousing his faith in the President to get it right.
Others, such as JPMorgan & Chase Co. JPM CEO Jamie Dimon, have been less than enthusiastic, predicting a recession as “the likely outcome” due to tariff-related uncertainties.
Last week, Blackstone Inc. BX President Jonathan Gray repeated the same, adding that “The recession risk is directly tied to the length of the uncertainty.”
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