Most observers were shocked by the August jobs report, but the private sector has created a scant 29,000 jobs per month since June.

President Trump’s tariffs and immigration policies and artificial intelligence are fueling stagflation—stalled employment growth and accelerating inflation.

Since March, Trump has boosted average import duties to 18%.

Taxes on specific products vary widely by country of origin and change with administration policy whims.

Policy uncertainty is freezing most investment and hiring, beyond the build out of AI and supporting infrastructure. Meanwhile the latter is driving a productivity revolution that disrupts labor markets across the economy.

Imports are just 14% of GDP, but in goods producing industries, those often cap prices for U.S. businesses. Competition from Japanese and Korean automobiles limit GM and Ford prices.

With future tariffs uncertain, businesses can’t gauge the prices markets will support over the long run, want to avoid unnecessarily alienating customers in the near term and can’t estimate costs for imported materials and components a few months from now.

For now, American businesses are swallowing much of the cost of tariffs.

To cope with rising tariffs and sluggish demand, businesses are cutting headcount, trimming expenses like marketing and selectively raising prices to still boost profits and stock prices.

When the logjam breaks on passing through tariffs to consumers, inflation will be 3% or more for many months.

Along with Administration efforts to downsize government, those forces gave us only 22,000 new jobs in August—the private-sector added 38,000, while governments subtracted 16,000.

As the ICE raid at the Georgia Hyundai complex demonstrated, Trump’s deportations go beyond dangerous criminals. And the administration appears intent on significantly reducing legal immigration, too.

Apollo Global Management’s economists estimate that without net new immigrants to supplement indigenous working-age population growth, the economy can only add 24,000 jobs a month as compared to about 130,000 added during the first Trump and Biden Administrations.

August unemployment at 4.3% is close to what Federal Reserve policymakers consider consistent with price stability and full employment.

Even with ICE on steroids, getting net immigration down to zero will prove a daunting challenge, because: tech leaders need foreign skilled workers to compete with China; Americans are unlikely to take many jobs immigrants fill in agriculture, construction and manufacturing; and the overwhelming task of removing 14 million illegal immigrants.

Goldman Sachs expects net immigration to ultimately settle around 500,000 a year. That wouldn’t be adequate to power enough broad-based growth to lift Americans whose skills have been made redundant by AI.

The privately funded jobs market is in neutral.

In August, the heavily dependent on government support private health care and social assistance industries added 47,000 jobs, while the rest of the private sector shed 9,000

This disappointing performance wasn’t caused by shrinking demand—economic growth though hardly stellar remains positive and corporate profits are rising.

Layoffs and separations remain low but as workers leave jobs, business use AI to avoid hiring replacements.

With only slow economic growth, many managers, administrative personnel and white collar workers with job-specific skills displaced by AI like customer-service agents, insurance adjusters, software engineers and lawyers face much longer periods of unemployment.

Many need to retool or accept radically lower pay.

With an economy expected to grow less than 2% annually over the next decade, AI is increasing productivity more rapidly than demand is growing in many industries.

Without much faster economic growth, productivity gains from AI will permanently eliminate more jobs than retraining resources could possibly accommodate.

A Rust Bowl on a continental scale is emerging.

This realization is igniting pessimism and disillusionment among working- and middle-class Americans. And makes voters ripe for opportunistic politicians like New York mayoral candidate Zohran Mamdani.

The August jobs report ignited expectations that the Fed will embark on a series of interest rate cuts. But without more immigration to enable businesses to fill gaps in occupations where too few native born Americans have the needed skills or inclination to work, easy money will yield more inflation and boost the appeal of radical ideologies.

The remedy must be a skills-focused immigration policy to enable faster economic and jobs growth across the entire economy.

From 1997 to 2024, the economy grew 2.5% annually and created more than 12 million jobs with most filled by immigrants.

To reenable that pace, we need at least one million immigrant workers annually with visas allocated according to where businesses can’t find enough skilled or willing American workers.
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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.