As Donald Trump prepares to make his economic moves at home, economists have warned that key parts of his policy platform — including high tariffs and big tax cuts — will likely increase inflation and strain US finances. -‘s.
The Trump campaign will lay out plans to “make America rich again” as Republicans gather in Milwaukee on Monday for the first day of the party’s convention.
While the former president has vowed to lower prices “rapidly” if he defeats Joe Biden in November’s presidential election, experts believe his policies risk making them higher.
A second Trump administration would “defeat inflation, address the cost-of-living crisis, improve fiscal soundness, restore price stability, and rapidly lower prices,” according to the National Committee’s official policy platform Republican, published last week.
But economists raised concerns that his plans for high tariffs on foreign goods and sweeping tax cuts would do the opposite.
“If you follow through on tax promises, it’s not going to add up,” said Owen Zidar, professor of economics and public affairs at Princeton University.
“There is a difference between lowering prices and lowering inflation,” Michael R Strain, director of economic policy studies at the American Enterprise Institute, a conservative think tank. “I don’t think anything he’s proposing would lead to direct price cuts.”
Inflation rose to its highest level in a generation two years ago, prompting policymakers at the Federal Reserve to raise interest rates to their highest level in two decades in an effort to cool the world’s largest economy. The consumer price index has since fallen from its peak of 9.1% to 3%, but millions of Americans are still facing higher costs of living.
While Trump is trying to blame Biden for inflation and position himself as the man who will “destroy” it, a Wall Street Journal poll of economists — conducted this month and published last week — found that most believe inflation, deficits and interest rates would be higher. under Trump than Biden.
Tariffs will ‘hurt’
The Republican policy platform, said to have been personally drafted by Trump, included a commitment to introduce “baseline” tariffs. Imported goods would face a 10% tax, according to his campaign.
Such a plan would “damage the economy,” said Bernard Yaros, chief US economist at Oxford Economics. “If we get omnibus tariffs, it will add to inflation immediately,” he said.
The tariffs are part of an effort to build America into the “world’s manufacturing superpower,” according to the Republican platform. Trump made similar promises, in a clear move to the country’s industrial centers, in 2016. Results during his first administration were suboptimal.
“It’s going to be pretty hard to turn the U.S. into a manufacturing superpower,” said Zidar, who noted that services — from health care and haircuts to vacations — rather than goods “are 85% of the economy, for in terms of added value”. .
Tax cuts will cost ‘trillions’
Trump’s proposed tax package — extending cuts introduced during his first term, eliminating tip taxes for hospitality workers and pursuing unspecified “additional” cuts — has raised fears that the large budget deficit of the U.S.- he would notice.
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His tax plans “will cost trillions of dollars at a time when the budget deficit is growing and the national debt is on an unsustainable trajectory,” Strain said.
There is a “mismatch between large tax cuts and the central goal of reducing inflation,” Zidar said. “If they follow through on what they say, it will be expansionist. It will expand economic activity, increase interest costs [on US government debt] and drive inflation.”
Promises of lower federal spending are “actually pretty misleading,” he added, “when you consider the plans on the tax side and what that will do to the deficit and interest costs.”
Trump’s inflation plan
Trump’s stated plan to reduce inflation has five main pillars: lifting restrictions on domestic energy production, cutting “wasteful” government spending, reducing regulations, cracking down on immigration and “restoring peace” around the world.
How likely Trump is to achieve such goals is an open question. A White House that is more supportive of US oil and gas giants is not guaranteed to convince them to significantly increase production, Yaros said. But even if all of these targets are met, “I don’t see any of this having an immediate impact on inflation.”
Republicans argue that imposing tighter border restrictions and carrying out broad deportations will help “reverse” policies under Biden that they claim have increased the costs of housing, education and health care. But economists warn that Trump’s stated immigration plans risk worsening inflation.
“If he’s serious about deporting several million people in a relatively short period of time, that would lead to huge increases in wage rates in those sectors, and a lot of that would be passed on to consumers,” Strain said. “We should expect to see big increases in the price of fresh produce, big increases in the price of hotel rooms, big increases in the price of restaurant meals.”