If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.
Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented immigrants.
“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, chief US economist at Oxford Economics, told Al Jazeera.
“This is ultimately the biggest risk. If Trump is president, tariffs will surely go up. The question is how high they go and how widespread they are,” Yaros said.
Trump has proposed imposing a 10 percent tariff on all imported goods and tariffs of 60 percent or higher on Chinese imports.
During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report published in June.
However, these taxes caused “measurable economic damage,” particularly in the agriculture, manufacturing and transportation sectors, according to the report.
“A tariff hike covering nearly all goods imports, as Trump recently proposed, goes beyond any previous action,” Moody’s Analytics said in its report.
Businesses typically pass on higher fees to their customers, raising prices for consumers. They can also influence businesses’ decisions about how and where to invest.
“There are three main tenets of the Trump campaign, and they all point in the same direction of inflation,” Matt Colyar, associate director at Moody’s Analytics, told Al Jazeera.
“We didn’t even think to include retaliatory tariffs in our modeling, because who knows how widespread and what form the ‘jumping for tat’ model might take,” Colyar added.
“Recession becomes a serious threat”
When the US opened its borders after the COVID-19 pandemic, the influx of immigrants helped ease labor shortages in a variety of industries such as construction, manufacturing, leisure and hospitality.
The labor market recovery, on the other hand, helped reduce inflation from its mid-2022 peak of 9.1 percent.
Trump has not only proposed the mass deportation of 15 to 20 million undocumented immigrants, but also restricted the entry of migrant workers with visas.
That, along with a wave of retiring Baby Boomers — about 10,000 of whom are leaving the workforce every day — would put pressure on wages as it did during the pandemic, a trend that has only recently begun to ease.
“We can assume that he will throw enough sand in the gears of the immigration process so that you have meaningfully less immigration, which is inflationary,” Yaros said.
Since labor costs and inflation are two important measures that the US Federal Reserve weighs when setting its key interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates. .
That would make recession a “serious threat once again,” according to Moody’s.
Adding to these inflationary concerns are Trump’s proposals to extend his tax cuts for 2017 and further reduce the corporate tax rate from 21 percent to 20 percent.
While Trump’s proposed tariff hikes would make up for some lost revenue, they would not fully make up for the shortfall.
According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs, while his tax cuts would cost $3.4 trillion.
Yaros said government spending is also likely to rise as Republicans push for bigger defense budgets and Democrats push for bigger social spending, further fueling inflation.
If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help American companies compete with government-backed Chinese firms.
With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, tax cuts for higher earners such as those making more than $400,000 a year will expire.
Although Biden has said he would raise corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he will be able to push through.
The opposing economic visions of the two presidential candidates have created unwanted uncertainty for businesses, Colyar said.
“Firms and investors are finding it difficult to stay ahead [their plans] given the two different ways the US election could go,” said Colyar.
“Throughout my tenure, geopolitical risk has never been as important a consideration as it is today,” he added.