The Economist. Hello, and welcome to The Intelligence from The Economist. I'm your host Rosie Bloor. Every weekday, we provide a fresh perspective on the events shaping your world. When Donald Trump was elected, the markets soared. But in the longer term, will the effect of Trumponomics really be good for America's economy?
And airships seem like a strange relic from the early years of flight, but their cheap, efficient and the technology is pretty simple. So blimps could be making a comeback. But first,
Ukraine has long been pressing America to let it use U.S. supplied long-range missiles in Russian territory. This weekend, President Falodomiz Zelensky seemed to get his wish. Though not officially confirmed by the White House, Zelensky said yesterday that missiles will speak for themselves.
There'd been concerns that using such weapons would seriously escalate the war in Ukraine. So what difference might they actually make? America has been dithering over this decision, you could say, for more than two years. The fact that it's finally allowed Ukraine to use American long-range missiles inside Russia, it's a really significant policy shift. Shashank Joshi is our defense editor.
It isn't going to dramatically turn the battlefield around, but it will boost morale in Ukraine. It will strengthen their hand ahead of talks. And it could also mean there's a fairly tumultuous couple of months ahead as Russia thinks about how it will respond. Before we get to what the missiles mean, after all that dithering, why has Biden made this decision now?
Fundamentally, I think it's about North Korea. It's about North Korea sending thousands of troops to the Kursk region inside Russia to repel this Ukrainian attack there. And I think America was fairly shocked by this. They saw it as a major escalation.
They think that if Ukraine can use these missiles to inflict significant costs on those North Korean forces, it will make Kim Jong-un the leader of North Korea think twice about whether he should send more, because that really is the big Western concern that this becomes a North Korean pipeline. Having said that, I think
also a bit more to it than just North Korea. I think that Biden will be very conscious that Ukraine could face a dramatic change in its circumstances with the arrival of Donald Trump. He could cut aid, he could restrict permission on intelligence sharing. So by giving him this permission now, he may be helping to strengthen Ukraine's hand while he still can. He might also be judging to some degree that Putin isn't going to dramatically escalate
before Trump comes into office because he thinks he has something to gain from Trump. So there may be lots of quite complicated calculations going on inside the Oval Office at the minute. All right. So one of the things that seemed to be holding Biden back was the idea that allowing these long-range missiles to be used would be seen as an escalation. And you're now saying you don't think that that is the case?
No, I think Biden will absolutely still think he's engaged in a risky activity here. And that's for a couple of reasons. As I think Rosie, you and I talked about maybe a couple of months ago, these are not just normal missiles that you hand over to Ukraine and they fire them off anywhere they like. And it's just a matter of permission.
America is giving Ukraine assistance in firing some of these long-range missiles because they're typically fired against very well-defended quite high-value targets, and Ukraine will need assistance in terms of intelligence, how well-defended the targets are. Mission planning, as we call it, when you prepare these launches. And so it is true that there is a deeper degree of Western involvement
with this as with similar French and British cruise missiles that we can talk about later. And so Putin warned explicitly a couple of months ago that if these were used on Russian soil, that he would see this as direct involvement in the conflict by the West. So I think Biden knows there is still an escalation risk, not just inside Ukraine, but what Russia might do elsewhere. I think he's just decided that that risk is now worth bearing given the other circumstances of this conflict.
And shut down what might some of those well-defended targets in Russia be that Ukraine will now be able to strike? It depends which bit of Russia, Rosie, because the initial indications we're getting are that Biden will restrict the use of this system to the Kursk region.
That kind of makes political sense if the aim is to respond to North Korean escalation. It doesn't make much military sense because many of the targets that Ukraine would most value are not in the Kursk region, they're elsewhere along other parts of the front. But if you stick to Kursk, really there are still a large number of command posts, ammunition depots, logistics hubs, for example railway sites that Ukraine can strike.
And you mentioned French and British missiles earlier, what impact will they have? Well, Britain and France have provided missiles called Storm Shadow or Scalp, and these are cruise missiles, not ballistic missiles like ATACOMs, but they're very, very capable. And so far, neither country appears to have given permission for use of those inside Russia. I think it's quite obvious they've been waiting for a joint decision with the White House. And my guess, it's no more than that at this stage, Rosie, is that
This American decision will now free up the French and the British to say you can also use our missiles inside Russia. What would be really interesting to see is if they can find their use to Kursk province or Ukraine, use these anywhere. If they let them use them anywhere, I think there could be some very nasty surprises in for Russia in their days ahead.
Over the weekend we've seen a slight divergence in some ways over what different leaders have done because this weekend also Germany's Chancellor Olaf Scholz broke with other Western nations and cooled Putin. How significant was that as a decision?
It was significant because Schultz hasn't spoken to Putin to my knowledge in two years. In fact, very few Western leaders have other than what you might call kind of pariah states or rogues like Victor Orban of Hungary. And so a lot of people raise their eyebrows. Now, the argument you could say from Germany is first of all, Donald Trump has spoken to Putin allegedly.
We're not sure about that. The Kremlin denies it, so we don't know for sure. But Trump has spoken to Putin, seemingly. So why shouldn't Europeans? And we all know that talks are coming up. And therefore, we should send a message to Putin, as Schultz did, that we are still committed to Ukraine. On the other side, it immediately provoked a backlash from other leaders, including Volodymy Zelensky and also Donald Tusk of Poland. It was very critical. And the argument is,
Schulz is doing this because he's in the middle of a domestic political election campaign in which he's trying to portray himself as the responsible leader against the more reckless, aggressive, belligerent, center-right leader or his opponent. And I think the criticism is really that by doing this now, by breaking this gap in communications, Schulz is signaling weakness. He is indicating, I need talks more than you do, and that the Kremlin will effectively smell this and sense weakness rather than strength.
And of course, let's not forget Ukraine and all of this. Over the weekend, Russia hit its power infrastructure in a massive missile attack. How big an effect will that have had on Ukraine in its day-to-day life, in its workings?
had a really substantial effect. Not only did we see seven people killed, which is, of course, a tragedy, but also there were blackouts and restrictions of power in all the regions of Ukraine. And as anyone who's listening from there will understand, will know very well, the temperatures are getting extremely low. So heat is a significant problem.
And I think that this is an indication Putin fully intends to try to freeze terrorize and sap the morale of Ukrainians over the winter period in the hope that their ability to resist and withstand his campaign will be substantially diminished come the spring. And then he hopes he'll be able to simply dictate terms to Donald Trump.
Tomorrow will be the thousandth day of this war. Ukraine is entering winter. We've already said it's a perilous moment. Should Biden have made this decision earlier?
Yes, we in our leader pages have argued that America should have eased restrictions on missile strikes, not lifted because I accept there are some things they shouldn't hit that are very risky or may cause escalation. So we've always said that, but alongside that, I offer this warning, which is that if anyone thinks this is going to suddenly tip the balance on the front lines, bring Russian assaults to a halt,
enable Ukraine to go back on the offensive. That's nonsense. It isn't going to do any of those things. It'll have a modest effect on Russia's military potential. It will strengthen Ukraine's hand. But really, this is not going to cause a dramatic change in the front lines. It's too late for that. It was probably never going to do that on its own. Let's keep this in perspective. It would be my piece of advice to everyone. Shashank, thank you so much. I'm sure we will talk again soon. Thank you very much.
Not everyone was delighted when Donald Trump won a decisive victory in the presidential election 10 days ago. But the markets certainly were. Right now, the stock market is rallying around the news that former President Trump will be named the 47th president of the United States. The Dow actually hit a new record high early in trading this morning. Though the American economy has outpaced its rivals, many voters thought it was in the doldrums and plumped for Trump because they expect him to turn it around.
So will Trump's policies deliver prosperity or pain? Donald Trump's economic policy or Trumponomics as many call it consists of four big things.
Simon Rabinovich is our US economics editor. One tax cuts, two aggressive deregulation, three tariffs on foreign trade, and four a crackdown on immigration. We saw a preview of much of this in his first term, but in his new term, he's likely to expand on what he did and push even farther.
Okay, so let's take the first two of those, the tax cuts and aggressive deregulation. What's he planning?
On tax cuts that he passed a big tax cutting law in 2017, a significant chunk of that, especially the individual income tax cuts are due to expire at the end of next year. So he wants to extend that. It's actually a very expensive policy. It'll cost the government about $4 trillion plus and lost revenue over the next decade. He also has talked about reducing the corporate tax rates, currently 21%, maybe he'll
take it as low as 15% and while on the campaign trail he had every week another new tax cutting promise from no taxes on tips to no taxes on social security benefits to letting people deduct more of their local taxes from their federal tax bill
The general conclusion of economists is that a lot of these things might be good for growth in the short term. And indeed, that's why investors are pretty optimistic about the outlook for markets. But in the longer term, there are some clear concerns. America's fiscal deficit is already really, really high. The budget deficit is running at about 6% of GDP. If Trump got his way on all of his tax cuts, that deficit could hit more than 10% of GDP, which is eye-wateringly high.
And where does deregulation fit into all of that? So deregulation is partly about reversing the momentum that was seen under the Biden administration towards tighter regulation of banks, of companies that are involved in cryptocurrencies of the way that
tech companies are experimenting with AI. All of those regulations are ones that the Trump administration wants to undo. They also want to make it easier for energy companies to drill for oil, to drill for gas, and then to export that. And again, that's something that has markets pretty excited and arguably could actually be a good thing for America's growth fundamentals. The one that people talk most about abroad is tariffs. What's the plan for tariffs?
Well, Trump was very clear on the campaign trail that he wants to raise tariffs in Trump's first term. The focus of his trade war was against China. And now he wants to take tariffs even higher. He brought them up on many products to about 25% against China. He's talked about going to 60% on all made in China goods.
But he's also talked about maybe a 10%, maybe a 20% universal across the board tariff on everything out of America being brought into the country. That's something that a lot of economists and investors as well are worried about. There's a question about whether he actually means what he says. And I do think that if you look at Trump over the years, a belief in tariffs, I would argue, is one of the consistencies in his economic outlook. He thinks
It's good for the manufacturing sector. He thinks it's good for America. Economists disagree. They think that terrorists will make things more expensive. They'll push up inflation. They'll actually be a drag on growth. So we'll see how much he pushes out of the gate in terms of raising tariffs. But he certainly seems minded to move quickly on this front. One of the other things Trump has consistently said would be good for America is to deport millions of undocumented migrants. What would that do to the economy?
If he actually follows through on his promised deportations, it would first and foremost be a human tragedy. So just the scale of the deportation and how they would actually do it and what that would mean for families. The second order question then is what does it mean for the economy and is bad for the economy as well. Migrants are a critical part of the labor force. They're absolutely integral to sectors like
construction, like food service and food preparation, agriculture. These are sectors that during the pandemic, when there weren't as many migrants coming in for a time, were beset by labor shortages and that raised prices and made production really difficult. The question is, logistically, is he actually going to be able to do what he says? I think it's quite clear that he'll be able to be quite strict about enforcing border measures. He may not be able to get to his promised deportations of millions and millions of migrants. It might be
kind of an upward case of maybe one million per year, but even that would have a clear negative impact on growth and on inflation as well. Aren't there some questions about whether he might limit legal migration too?
Yeah, so here he's sort of spoken with a forked tongue where at points on the campaign trail, he's said that he likes the idea of having a pathway for university graduates to get green cards. America needs to have skilled people. And economists would agree with that, but they would also say that you need to have unskilled migrants as well. You need to have all kinds of people coming into America because the native-born working population is beginning to shrink.
Now, as I said, he's spoken with a fork tongue because if you go back and you look at his previous administration, he actually made it a lot harder for would-be green card holders to get the right to stay in America. And if you look at his personnel, for example, Stephen Miller, who is a key figure in the first Trump administration, he's going to be deputy chief of staff in the White House for Policy, which is a really, really powerful position.
And he is absolutely number one skeptic about immigration. And he's going to be involved in such an important policy position. I would say a fair assumption is that this idea of making green cards easier is going to disappear when it actually comes time for Trump to govern. So it's a dramatic scheme of policies that you've laid out, Simon. What do you think the overall outcome would be? What would be the effect of Trumponomics?
Well, I guess the first thing to say is that in the short term, the market is incredibly optimistic about what it all means. After he was elected, American stocks were already basically at record highs and they've climbed even further up. The dollar has strengthened crypto assets like Bitcoin have soared. If you look at the stocks that are moving, many of the ones that have been doing the best are ones that are specifically related to Trump's agenda.
big energy companies, financial firms, even operators of prisons have performed incredibly well. However,
When Trump begins to push ahead with tariffs and with deportations, I think he will have a reassessment in markets about what it all means because those are not going to be good for the economy. They're going to drive up inflation. They're going to slow growth. It'll take some time for him to get these policies into place. It will then take some time to actually see what their impact on the economy is going to be.
But I think by the end of next year, as we head into 2026, we'll begin to see problems emerging from tariffs, from deportations. Ultimately, Trump was elected with a mandate to shake things up. He's certainly planning to shake things up. There's optimism right now. I don't think that's going to last, though. There is a lot to be worried about in the outlook for Trumponomics. Simon, thank you so much. Thank you, Rosie. My pleasure.
And you can hear more about Donald Trump's agenda in checks and balance our weekly US Politics Podcast, which was out on Friday. You'll need to be a subscriber to listen. Subscribing to Economist Podcast Plus helps make our journalism possible, so thank you. Search Economist Podcast Plus for a free trial.
mentioned human flight and most of us probably think about the invention of the aeroplane. But despite the glory heaped on the Wright brothers for taking wing in 1903, it's easy to forget that people actually flew over a century earlier, in balloons. Over the years, the hot air in those flying balloons was swapped for gases like hydrogen and helium.
The premise remained the same, though. The vehicle was lighter than air. By the 1920s, airships were circumnavigating the world. And look at the size of the Grov Zeppelin, which looks big even with Atlantic Ocean under it. Destined to set a record for round the world travel.
They were so popular that the Empire State Building was built with an airship docking mast. Careful now, cautiously maneuvering in the high wind and adding currents around the big building to flimp circles about the mast. Admittedly, there were some pretty dramatic failures, notably the Hindenburg disaster in which a German Zeppelin became a ball of flame. And eventually aeroplanes improved and airships fell out of vogue.
but now this old technology is exciting renewed interest. The airships of today aren't anything like the 1930s zaplins. Benjamin Sutherland writes about technology.
There's been quite a resurgence of interest in commercializing airships, and some of the innovators involved are being backed by pretty big aerospace firms in the United States and Europe. There's been a big effort to see if airships can finally, after centuries of existence, if you go back to hot air balloons, become viable for moving cargo.
I have to say Ben, I thought of airships as very much a last century thing. Why would you use them rather than planes or drones?
Well, for starters, airships have what engineers call an incredible lift to drag ratio, which means they can be moved with very little effort. So anything that's floating, whether it's a boat, a blimp, a bubble, it can be moved and parked for that matter with very little energy applied to it. They don't consume much fuel. And of course, they're not as fast as airplanes, but they're not slow either.
And you don't have the problem with traffic jams or fly over height limits or other impediments to moving goods by ground. So theoretically, at least, airships would make for incredible cargo delivery vehicles, freight vehicles. You say, theoretically, I'm sensing a buck coming. Absolutely. So the big stumbling block so far has been something called variable buoyancy.
when you're gonna be picking up cargo and dropping it off somewhere else, the weight of the airship changes a lot and you have to be able to compensate for the lift or the airship is either gonna come down to the ground or it's gonna fly off. Now, you might think you could just release helium or whatever other lifting gas is used, but there are problems with that. It's logistically tricky. You'd have to have supplies of these gases all over the place.
And they're just too expensive helium for example most commonly used lifting gas now costs about thirty five dollars for a cubic meter and that's how much you need to lift a single kilogram so it's just impractical. So has anyone found a way through this problem of variable buoyancy what are people doing to try and make cargo ships.
Yes, so one way to do it is to compress and then decompress helium drawing in heavier air from the outside to compensate, which can allow you to adjust the weight according to what you're carrying or whether you've just dropped off a load.
But the most straightforward approach is to carry ballast. The most practical appears to be water. So, for example, flying whales, a French airship designer expects one of its largest markets to be moving heavy logs from forests to sawmills. And of course, there's no problem.
dump in a large amount of water into the forest and any sawmill is going to be in an area where you have access to water from the main system. So there are plenty of situations where water is practical. So Ben, being realistic, are we going to see blimps coming to a sky near us soon?
Well, one sign for optimism is that there's a lot of pretty big established firms that are getting behind the ideas. It's also encouraging. There's a lot of creativity in the area. For example, there's a few firms that are developing what they call flying warehouses and the ideas to have an airship serve as an aerial mothership or a hub for fleets of drones dropping Amazon packages and backyards and on doorsteps.
Arrows and airship maker in Los Angeles is one of the companies developing such a system and they're expecting to have a commercial demonstration Operating above LA by early next year now the note of caution here is that the world of airships has attracted Sometimes it seems as many dreamers as hard-nosed engineers over the centuries So it'll be exciting to see if they can pull it off this time around
fascinating. It feels like there's a metaphor in that the idea of an Amazon warehouse in the sky dropping things on us. Ben, thank you so much. Great to talk to you. Thank you.
That's all for this episode of The Intelligence. Let us know what you think of the show. You can get in touch at podcast at economist.com. We'll see you back here tomorrow.
