If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and more national debt, according to economists.
Trump’s second-term economic agenda includes raising import tariffs, cutting taxes and deporting millions of undocumented migrants.
“The main impact will be inflation” of a second Trump presidency, Bernard Yaros, chief US economist at Oxford Economics, told Al Jazeera.
“That’s ultimately the biggest risk.” If Trump is president, tariffs will definitely increase. The question is how high they go and how widespread they are,” Yaros said.
Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or more on Chinese imports.
During Trump’s first term in office from 2017 to 2021, his administration imposed 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.
Nevertheless, the report said, these charges caused “measurable economic damage”, particularly in agriculture, manufacturing and transport.
“Tariff increases covering almost all imported goods, as recently proposed by Trump, go far beyond any previous measures,” Moody’s Analytics said in its report.
Businesses typically pass on higher tariffs to their customers, raising prices for consumers. They could also influence businesses’ decisions about how and where to invest.
“The Trump campaign has three main tenets, and they all point in the same direction of inflation,” Matt Colyar, assistant director of 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 tit-for-tat model might take,” Colyar added.
“Recession Becomes a Serious Threat”
When the US opened its borders following the COVID-19 pandemic, the influx of immigrants helped ease labor shortages in a number of industries such as construction, manufacturing, leisure and hospitality.
The recovery in the labor market, in turn, helped bring down inflation from its mid-2022 peak of 9.1 percent.
Not only has Trump proposed the mass deportation of 15 to 20 million illegal migrants, but he has also proposed restricting the flow of migrant workers who have visas.
That, along with a wave of departing Baby Boomers — an estimated 10,000 of whom are leaving the workforce every day — would put downward pressure on wages like it did during the pandemic, a trend that has only recently begun to ease.
“We can assume that it will put enough sand in the wheels of the immigration process that you will have significantly less immigration, which is inflationary,” Yaros said.
Since labor costs and inflation are two important measures that the US Federal Reserve considers when setting its benchmark interest rate, the Fed could announce another rate hike or at least wait longer to cut rates.
That would make recession “a serious threat again,” according to Moody’s.
Trump’s proposals to extend his 2017 tax cuts and further cut the corporate tax rate from 21 percent to 20 percent have added to these inflationary concerns.
While Trump’s proposed tariff hikes would offset some of the lost revenue, they would not completely offset 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 higher social spending, further pushing up inflation.
If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They believe he will continue to use targeted tariff increases, similar to 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. In particular, tax cuts for higher-income earners, such as those making more than $400,000 a year, would expire.
Although Biden has said he would raise corporate taxes from 21 percent to 28 percent, given the divided Congress, he is unlikely to be able to push through.
The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.
“Companies and investors have a hard time staying on top [their plans] given the two different ways the US election could go,” Colyar said.
“Throughout my tenure, geopolitical risk has never been as important a consideration as it is today,” he added.