Trump’s economic plans would worsen inflation, experts say
With characteristic bravado, Donald Trump has vowed that if voters return him to the White House, “inflation will vanish completely."
It’s a message tailored for Americans who are still exasperated by the jump in consumer prices that began 3.5 years ago.
Yet most mainstream economists say Mr. Trump’s policy proposals wouldn't vanquish inflation. They’d make it worse. They warn that his plans to impose huge tariffs on imported goods, deport millions of migrant workers and demand a voice in the Federal Reserve's interest rate policies would likely send prices surging.
Moody’s Analytics has estimated that Ms. Harris' policies would leave the inflation outlook virtually unchanged, even if she enjoyed a Democratic majority in both chambers of Congress. An unfettered Mr. Trump, by contrast, would leave prices higher by 1.1 percentage points in 2025 and 0.8 percentage points in 2026.
Mr. Trump insists that the cost of taxing imported goods is absorbed by the foreign countries. The truth is that U.S. importers pay the tariff—and then typically pass along that cost to consumers in the form of higher prices. Americans themselves end up bearing the cost.
Kimberly Clausing and Mary Lovely of the Peterson Institute have calculated that Mr. Trump’s proposed 60% tax on Chinese imports and his high-end 20% tariff on everything else would, in combination, impose an after-tax loss on a typical American household of $2,600 a year.
The Trump campaign notes that U.S. inflation remained low even as Mr. Trump aggressively imposed tariffs as president.
But Mark Zandi, chief economist at Moody’s Analytics, said that the magnitude of Mr. Trump’s current tariff proposals has vastly changed the calculations. “The Trump tariffs in 2018-19 didn’t have as large an impact as the tariffs were only just over $300 billion in mostly Chinese imports,’’ he said. “The former president is now talking about tariffs on over $3 trillion in imported goods.''
And the inflationary backdrop was different during Mr. Trump’s first term when the Fed worried that inflation was too low, not too high.
Mr. Trump, who has invoked incendiary rhetoric about immigrants, has promised the “largest deportation operation'' in U.S. history.
Many economists say the increased immigration over the past couple years helped tame inflation while avoiding a recession.
The surge in foreign-born workers has made it easier for fill vacancies. That helps cool inflation by easing the pressure on employers to sharply raise pay and to pass on their higher labor costs by increasing prices.
Net immigration—arrivals minus departures—reached 3.3 million in 2023, more than triple what the government had expected. Employers needed the new arrivals. As the economy roared back from pandemic lockdowns, companies struggled to hire enough workers to keep up with customer orders.
Immigrants filled the gap. Over the past four years, the number of people in the United States who either have a job or are looking for one rose by nearly 8.5 million. Roughly 72% of them were foreign born.
Wendy Edelberg and Tara Watson of the Brookings Institution found that by raising the supply of workers. the influx of immigrants allowed the United States to generate jobs without overheating the economy.
In the past, economists estimated that America’s employers could add no more than 100,000 jobs a month without igniting inflation. But when Ms. Edelberg and Ms. Watson factored in the immigration surge, they found that monthly job growth could reach 160,000 to 200,000 without exerting upward pressure on prices.
Mr. Trump's mass deportations, if carried out, would change everything. The Peterson Institute calculates that the U.S. inflation rate would be 3.5 percentage points higher in 2026 if Mr. Trump managed to deport all 8.3 million undocumented immigrant workers thought to be working in the United States.
The Fed is the government’s chief inflation-fighter. It attacks high inflation by raising interest rates to restrain borrowing and spending, slow the economy and cool the rate of price increases.
The Peterson Institute report found that upending the Fed's independence would increase inflation by 2 percentage points a year.
Published - October 15, 2024 04:38 pm IST
)
)
)
)
)
)
)
)
