Fed up with high prices and unimpressed with an economy that by just about any measure is a healthy one, Americans demanded change when they voted for president.
They could get it.
President-elect Donald Trump has vowed to topple many of the Biden administration’s economic policies. Trump campaigned on promises to impose huge tariffs on foreign goods, slash taxes on individuals and businesses and deport millions of undocumented immigrants working in the United States.
With their votes, tens of millions of Americans expressed their confidence that Trump can restore the low prices and economic stability they recall from his first term — at least until the COVID-19 recession of 2020 paralyzed the economy and then a powerful recovery sent inflation soaring. Inflation has since plummeted and is nearly back to normal. Yet Americans are frustrated over still-high prices.
“His track record proved to be, on balance, positive, and people look back now and think: ‘Oh, OK. Let’s try that again,’ ” said Douglas Holtz-Eakin, a former White House economic adviser, director of the Congressional Budget Office and now president of the conservative American Action Forum think tank.
Since Election Day, the Dow Jones Industrial Average has skyrocketed more than 1,700 points, largely on expectations that tax cuts and a broad loosening of regulations will accelerate economic growth and swell corporate profits.
Maybe they will. Yet many economists warn that Trump’s plans are likely to worsen the inflation he’s vowed to eradicate, drive up the federal debt and eventually slow growth.
The Peterson Institute for International Economics, a leading think tank, has estimated that Trump’s policies would slash the U.S. gross domestic product — the total output of goods and services — by between $1.5 trillion and $6.4 trillion through 2028. Peterson also estimated that Trump’s proposals would drive prices sharply higher within two years: Inflation, which would otherwise come in at 1.9% in 2026, would instead jump to between 6% and 9.3% if Trump’s policies were enacted in full.
Last month, 23 Nobel-winning economists signed a letter warning that a Trump administration “will lead to higher prices, larger deficits, and greater inequality.”
“Among the most important determinants of economic success,” they wrote, “are the rule of law and economic and political certainty, and Trump threatens all of these.’’
Trump is inheriting an economy that, despite frustratingly high prices, looks fundamentally strong. Growth came in at a healthy 2.8% annual rate from July through September. Unemployment is 4.1% — quite low by historic standards.
Among wealthy countries, only Spain will experience faster growth this year, according to the International Monetary Fund’s forecast. The United States is the economic “envy of the world,” the Economist magazine recently declared.
The Federal Reserve is so confident that U.S. inflation is slowing toward its 2% target that it cut its benchmark rate in September and again this week.
The centerpiece of Trump’s economic agenda is taxing imports. It’s an approach that he asserts will shrink America’s trade deficits and force other countries to grant concessions to the United States. In his first term, he increased tariffs on Chinese goods, and he’s now promised much more of the same: Trump wants to raise tariffs on Chinese goods to 60% and impose a “universal’’ tax of 10% or 20% on all other imports.
Trump insists that other countries pay tariffs. In fact, American companies pay them — and then typically pass along their higher costs to their customers via higher prices. Which is why taxing imports is normally inflationary. Worse, other countries usually retaliate with tariffs on American goods, thereby hurting U.S. exporters.
Kimberly Clausing and Mary Lovely of the Peterson Institute have calculated that Trump’s proposed 60% tax on Chinese imports and his high-end 20% tariff on everything else would impose an after-tax loss on a typical American household of $2,600 annually.
The economic damage would likely spread globally. Researchers at Capital Economics have calculated that a 10% U.S. tariff would hurt Mexico hardest. Germany and China would also suffer. All of that depends, of course, on whether he actually does what he said during the campaign.
Trump has threatened to deport millions of undocumented immigrants, potentially undermining one of the factors that allowed the United States to tame inflation without falling into recession.
The Congressional Budget Office reported that net immigration — arrivals minus departures — reached 3.3 million in 2023. Employers needed the new arrivals. After the economy rebounded from the pandemic recession, companies struggled to hire enough workers, especially because so many native-born baby boomers were retiring.
Immigrants filled the gap. Over the past four years, 73% of those who entered the labor force were foreign born.
Economists Wendy Edelberg and Tara Watson of the Brookings Institution’s Hamilton Project found that by raising the supply of workers, the influx of immigrants allowed the United States to generate jobs without overheating and accelerating inflation.
The Peterson Institute calculates that the deportation of all 8.3 million immigrants believed to be working illegally in the United States would slash U.S. GDP by $5.1 trillion and raise inflation by 9.1 percentage points by 2028.
Trump has proposed extending 2017 tax cuts for individuals that were set to expire after 2025 and restoring tax breaks for businesses that were being reduced. He’s also called for ending taxes on Social Security benefits, overtime pay and tips as well as further reducing the corporate income tax rate for U.S. manufacturers.
The University of Pennsylvania’s Penn Wharton Budget Model estimates that Trump’s tax policies would i ncrease budget deficits by $5.8 trillion over 10 years. Even if the tax cuts generated enough growth to recoup some of the lost tax revenue, Penn Wharton calculated, deficits would still increase by more than $4.1 trillion from 2025 through 2034.
The federal budget is already out of balance. An aging population has required increased spending on Social Security and Medicare. And past tax cuts have shrunk government revenue.
Holtz-Eakin said he worries that Trump has little appetite for taking the steps — cuts to Social Security and Medicare, tax increases or some combination — needed to bring the federal budget meaningfully closer to balance.
“It’s not going to happen,” Holtz-Eakin said.
12 comments
PeterH
November 9, 2024 at 5:40 pm
In 2016…..Trump inherited and terminated the longest period of economic prosperity and expansion in American history. Three months before the onset of COVID Trump’s manufacturing sector entered into recession. Trump’s promised new AND INCREASED TRADE tariffs will be paid for by American consumers. Yes indeed! Americans will get what the false economic promises they voted for in 2024. Mark this down … American unemployment is currently at 4% …. tell me how many people will be on the unemployment dole in four years.
"LIFE COACH" EARL PITTS AMERICAN
November 9, 2024 at 6:10 pm
America, this is an “In The Tank” (as Rush would say) for the Deamoncrats “ASS PRESS” [FKA The Associated Press] article re-print.
AS SUCH:
Likely not even worth your “Read-Time”.
OTHER THAN THAT:
Have a great Veterans Day Weekend
“LIFE COACH” EARL PITTS AMERICAN
Tom Palmer
November 9, 2024 at 6:11 pm
Watch for higher housing and food prices if Trump follows through.
"LIFE COACH" EARL PITTS AMERICAN
November 9, 2024 at 6:30 pm
Tom you are hereby CHASTIZED for BLASTPHIMING the name of The Sage Donald J Trump.
“LIFE COACH” EARL PITTS AMERICAN
Reaping What You Sowed
November 9, 2024 at 6:58 pm
Trump Air,this fool put marble in planes he owned show how smart he is,the lighter the plane,the more fuel efficient it is , Google Trump Air Marble
MarvinM
November 9, 2024 at 10:24 pm
Oh heck yeah.
Within 18 months* of Trump’s taking office, the U. S. economy will be in tatters.
IF he does anything like what he is promising he will do.
If we are lucky, somebody will talk him down on most tariffs and most mass deportation and most tax cuts for wealthy people and corporations, but we’ll see what happens.
* might be 24-36 months if certain measures that require congressional approval don’t get enacted within 2025.
Ocean Joe
November 10, 2024 at 8:45 am
Fear not, the rich will be OK, extension of their tax cut is already underway, and there will be plenty of low wage jobs abandoned by the deported so unemployment should drop to zero. Unless legals dont want to work for low wages under horrible conditions. Outlawing mandated water breaks in sunny Florida is just a taste of the kindler, gentler America on the way!
Sundowner
November 9, 2024 at 9:00 pm
Economics can help you if you help yourself..tax breaks did not reduce foods from the farm or will it ever .wild fires will see to higher pricing..meat will not go down to 198 a pound. Sick animals costs more. Fiber for clothes that’s up and running.
Waymon Toles
November 10, 2024 at 12:01 am
Please resurrect Ronald Reagan. At least bring back Reaganomics.
Ocean Joe
November 10, 2024 at 8:41 am
You liked the Father of the American Deficit? Don’t worry, trickle down economics is coming back, and somehow folks think it will end differently this time. Hope you guys are right. And me and Ed are waiting for all that free gas.
Michael
November 10, 2024 at 11:33 am
So, you are a deficit hawk? No question, Reagan increased the deficit, but also no question, the perpetual U.S. deficit for the last 40 years has proved to be inconsequential to economic growth or the strength of the dollar.
I would take Reagan over Trump in a heartbeat. Reagan was the father of free trade, which by all measures, ushered in an unsurpassed period of economic expansion to this day. Trump’s protectionism policies are exactly the opposite, so how can anyone actually believe these will also not produce the opposite results?
T
November 11, 2024 at 8:01 am
Immigrants come to the US in search of a better life. They achieve that by getting a job. Easy way to curb the job opportunity is to require every business to implement e-verify, proving that the person they are hiring is here legally. Gotta ask why and who are against e-verify? BTW – a lot cheaper to implement than building a wall.