There's Substantial Risk Trump Presidency Will Be 'Immensely Destructive' For Economy, Says Larry Summers: 'It's A Mistake Not To Be Extraordinarily Alarmed'

Donald Trump has taken a commanding lead in the Republican presidential primary and appears to have the edge in a hypothetical one-on-one matchup with President Joe Biden, according to several opinion polls. Amid this news, Larry Summers weighed in on what a potential Trump win would mean for the U.S. economy.

What Happened: “When you have a president who challenges the results of elections and brags about what he could do in one day as a dictator, it is not something that can be completely relied on,” said Summers in an interview for the Financial Times' “Unhedged” newsletter, which was published on Friday.

“That is a profound threat to our long-run prosperity, and therefore short-run asset prices, economic behavior, hiring, investment and everything else,” he added.

While suggesting a “Peron-ish, Mussolini-ish type leader” could have “have positive impacts on markets and some economic variables for some intervals,” Summers said “it’s a mistake not to be extraordinarily alarmed about the medium-term economic prospects of a government of that kind.”

Pointing to the presidential elections in 1980, 1988, 2000 and 2004, Summers said none of them prompted him to express alarm about the economic situation in the U.S.

“I always thought the system was robust and that pendulums swing,” he said.

“I do not feel that way about the prospect of a Trump presidency,” he said, adding that “there is a substantial risk that it would be immensely destructive because it moves the conversation into realms that we don't usually think about.”

The effects of a Trump presidency, according to the economist, “will take the form of destruction of the fabric of rule of law, which is the air that successful capitalism breathes.”

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Why It’s Important: Economic growth under Trump’s presidential tenure was fairly positive, except during 2020, which saw a COVID-19 induced recession. The annual growth was 2.3% in 2017, 3% in 2018, 2.2% in 2019 and a negative 3.7% in 2020. Overall, U.S. GDP growth averaged about 0.95% during Trump's first term in office. 

Biden inherited an economy that was nursing the wounds of the COVID-19 pandemic, and the stimulus measures that had been implemented to boost the ailing economy set off a spike in inflation. In a bid to contain inflation, the Federal Reserve was forced to raise the fed funds rate rapidly to a 22-year high of 5.25%-5.50%.

Although inflation has cooled off from the highs seen in the summer of 2022, it has not given the central bank confidence to reverse its rate hikes. Bidenomics, the term used to describe the current president’s economic policy, has also not been well received by the American public, according to most opinion polls.

The stock market, however, has gotten its mojo back, with the SPDR S&P 500 ETF Trust SPY — an exchange-traded fund that tracks the performance of the S&P 500 Index — up about 25% this year. It ended Friday's session down 0.16% at $469.33, according to Benzinga Pro data.

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