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 includes increasing tariffs on imports, reducing taxes and deporting millions of undocumented migrants.
“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, chief US economist at Oxford Economics, told Al Jazeera.
“That is ultimately the biggest risk. If Trump is president, tariffs will certainly increase. The question is how high they go and how widespread they are,” Yaros said.
Trump has proposed imposing a blanket 10% tariff on all imported goods and duties of 60% or more on Chinese imports.
During Trump’s first term, from 2017 to 2021, his administration introduced tariff increases that, at their peak, affected about 10% of imports, mainly goods from China, Moody’s Analytics said in a report released in June.
Even so, these taxes inflicted “measurable economic damage,” especially to the agriculture, manufacturing and transportation sectors, according to the report.
“A tariff increase covering nearly all imports of goods, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.
Companies typically pass on higher rates to their customers, increasing prices for consumers. They can also affect companies’ decisions about how and where to invest.
“There are three main tenets of the Trump campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.
“We didn’t even think about including retaliatory tariffs in our modeling, because who knows how widespread and what form the retaliation model could involve,” Colyar added.
‘Recession becomes a serious threat’
When the US opened its borders in the wake of the COVID-19 pandemic, the influx of immigrants helped alleviate labor shortages in a range of industries, including construction, manufacturing, leisure and hospitality.
The labor market recovery, in turn, helped reduce inflation from its peak of 9.1% in mid-2022.
Trump not only proposed the mass deportation of 15 million to 20 million undocumented migrants, but also restricted the flow of visa-holding migrant workers.
This, coupled with a wave of retirements by Baby Boomers – about 10,000 of whom leave the job market every day – would put pressure on wages, as has happened during the pandemic, a trend that has only recently begun to slow.
“We can assume that he will throw enough sand into the wheels of the immigration process that there will be significantly less immigration, which is inflationary,” Yaros said.
Given that labor costs and inflation are two important measures that the US Federal Reserve considers when setting its benchmark 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 the 2017 tax cuts and further reduce the corporate tax rate from 21% to 20%.
While Trump’s proposed tariff increases would make up for some lost revenue, they would not fully make up for the deficit.
According to Moody’s, the US government would generate $1.7 billion in revenue from Trump’s tariffs, while his tax cuts would cost $3.4 billion.
Yaros said government spending is also expected to increase as Republicans seek bigger defense budgets and Democrats push for greater social spending, further fueling inflation.
If President Joe Biden is reelected, economists do not expect any philosophical changes in his approach to import taxes. They think he will continue to use targeted tariff increases, similar to the recently announced 100% tariffs on Chinese electric vehicles and solar panels, to help U.S. companies compete with government-backed Chinese companies.
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. Most notably, tax cuts for higher income earners, such as those earning more than $400,000 a year, would expire.
Although Biden has said he would raise corporate taxes from 21% to 28%, given the divided Congress, he is unlikely to be able to follow through.
The contrasting economic views of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.
“Companies and investors are having difficulty maintaining control [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.
This story originally appeared on Aljazeera.com read the full story
