Richard Murphy: The US economy is on a cliff edge, Wile E Coyote-style

The National

28-04-2025

You will probably be familiar with him. He runs off the edge of a cliff, quite often. He maintains his forward momentum for a short while, his legs pumping furiously, until he looks down and realises not only is further forward progress impossible but that he will inevitably crash to the ground, as, of course, he does.
The metaphor appeared entirely appropriate to me when applied to the US economy and to the country as a whole. As I've been saying in this column, on my blog and on my YouTube channel, Donald Trump is going to crash the US economy. Nobody has taken my warnings more seriously than people in the US – my audience there has grown enormously in recent months.
Whether that is because there is a form of masochism deep in some parts of the American psyche that likes to be told by a person with an English accent (which I have) that they are heading for disaster, or that people in that country find something that resonates in my warnings, I do not know.
But what I am sure of is the fact that if we stand back and look at where the US is, it must crash soon.
A president cannot create the scale of havoc that Trump has, within his own country and beyond. without massive consequences arising.
Trump has declared a trade war.
He is fuelling US inflation.
He is harming US financial markets.
He is threatening US jobs.
He is reducing the profitability of US companies.
They will react by reducing the level of investment they make in the US economy, with inevitable consequences for the level of employment.
In addition, Trump has undermined the rule of law. He is also seeking to wreck the US Internal Revenue Service (the equivalent of HM Revenue & Customs), which is looking likely to lose about one-third of its staff in the space of little more than three months.
This is likely to destroy its capacity to operate, and so to collect the taxes the US government needs to function. The number of staff being sacked by the federal government might well affect the US unemployment rate. US foreign relations are in tatters. Russia is laughing. Ukraine and Gaza are at massive risk. Canada and Greenland rightly wonder what happens next.
Put all that together, and that feeling that Wile E Coyote had just before his descent began is one that many astute people in the US are now feeling. The rest are going to catch up soon.
What happens then? No-one knows. We are in uncharted territory. However, assuming that domestic stability can be maintained (and that cannot be guaranteed in a country with so many guns), the US economy is, at best, going to have an uncomfortable recession, and as likely a depression.
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A depression means the country might face a prolonged downturn in economic activity, typically lasting longer than three years. Depressions usually result in high unemployment and widespread business failures. The world has not seen one since the 1930s. Trump might just manage another, almost a century later.
That does not mean Scotland needs to suffer to quite the same extent, but there are two reasons to worry. The first is that when the US sneezes, the rest of the world tends to catch a cold – US economic downturns tend to be mightily contagious.
The second can be summed up in two words: Rachel Reeves. The Chancellor is still desperate to do a trade deal with Trump, as if his word is worth relying upon when, time and again, he has already proven it to be worthless.
Worse still, her dedication to her fiscal rules suggests she is capable of making things very much worse in the UK, and so in Scotland, than they might need to be. What I think we can be sure of is that she will do too little, too late, and then only what is necessary to appease the City of London, not to provide security to the people of Scotland.
We are in deep trouble, it is time to stop pretending otherwise. We are already almost certainly over that cliff. All we are waiting to find out is when our furious efforts to prevent the fall might fail.
Scotland and its political leadership need to work out now what they might do in response. There is no point looking to London for help. So, what is that response going to be? That is what I want to know.