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American Focus > Blog > World News > Trump’s Economic Plans Would Actually Worsen Inflation, Experts Warn
World News

Trump’s Economic Plans Would Actually Worsen Inflation, Experts Warn

Last updated: October 16, 2024 6:00 am
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Trump’s Economic Plans Would Actually Worsen Inflation, Experts Warn
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Donald Trump has boldly promised that if re-elected, he will make inflation disappear completely. This message is aimed at Americans who are still frustrated by the rise in consumer prices that began 3 1/2 years ago.

However, most mainstream economists argue that Trump’s policy proposals would not eliminate inflation but rather exacerbate it. They caution that his plans to implement large tariffs on imported goods, deport millions of migrant workers, and interfere with the Federal Reserve’s interest rate decisions could lead to a surge in prices.

Sixteen Nobel Prize-winning economists signed a letter in June expressing concerns that Trump’s proposals could reignite inflation, which has decreased since peaking at 9.1% in 2022 and is now nearly back to the Fed’s 2% target.

While in office, Trump started a trade war with China, imposing high tariffs on most Chinese goods. He also raised import taxes on foreign steel and aluminum, washing machines and solar panels.
While in office, Trump started a trade war with China, imposing high tariffs on most Chinese goods. He also raised import taxes on foreign steel and aluminum, washing machines and solar panels.

Kevin Dietsch via Getty Images

Last month, the Peterson Institute for International Economics projected that Trump’s policies could significantly drive consumer prices higher two years into his second term. Their analysis suggested that inflation, which would otherwise be at 1.9% in 2026, could jump to between 6% and 9.3% if Trump’s economic proposals were implemented.

While many economists are critical of Vice President Kamala Harris’ economic agenda, they do not see her policies as particularly inflationary. Moody’s Analytics estimated that Harris’ policies would have little impact on the inflation outlook, even with a Democratic majority in both chambers of Congress. In contrast, an unrestrained Trump could raise prices by 1.1 percentage points in 2025 and 0.8 percentage points in 2026.

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Consumers bear the cost of tariffs

Tariffs on imports, Trump’s preferred economic policy, are argued to protect American jobs and offer other benefits. However, the truth is that U.S. importers pay the tariff, passing on the cost to consumers through higher prices. Kimberly Clausing and Mary Lovely of the Peterson Institute calculated that Trump’s proposed tariffs could result in an after-tax loss of $2,600 per year for a typical American household.

The Trump campaign points out that U.S. inflation remained low during his presidency despite imposing tariffs. However, economists like Mark Zandi from Moody’s Analytics highlight that Trump’s current tariff proposals are significantly larger and could have a greater impact on prices.

Trump’s immigration policies and the impact on inflation

Trump has pledged to conduct the largest deportation operation in U.S. history, which many economists believe would reverse the recent immigration surge that helped mitigate inflation and prevent a recession.

The influx of foreign-born workers in recent years has eased inflation by filling job vacancies and reducing pressure on employers to raise wages and prices. However, mass deportations could change this dynamic, leading to a 3.5 percentage point increase in the U.S. inflation rate by 2026.

The impact of a politicized Federal Reserve

In August, Trump’s remarks about wanting to influence the Fed’s interest rate decisions raised concerns among economists. The independence of the Federal Reserve from political pressure is crucial for effectively managing inflation. Trump’s history of pressuring the Fed to lower rates could lead to a 2 percentage point increase in inflation annually if the Fed’s independence is compromised.

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Economic research has shown that central banks can only control inflation effectively if they are free from political interference. The Fed’s ability to raise interest rates to combat inflation must not be influenced by political motives to avoid economic repercussions.

Trump’s economic policies, if implemented, could have significant consequences for inflation in the United States, impacting consumers and the overall economy. The debate over inflation and the role of government policies in managing it will continue to be a key issue in the upcoming election.

TAGGED:EconomicExpertsInflationPlansTrumpswarnWorsen
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