WASHINGTON — Frustration over elevated prices and a lack of confidence in the current economic landscape prompted voters to seek change in the presidential election.
President-elect Donald Trump has pledged to dismantle several economic strategies implemented by the Biden administration. His campaign propagated ambitious initiatives, including imposing substantial tariffs on imported goods, significantly reducing taxes for individuals and businesses, and aggressively deporting millions of undocumented immigrants residing in the U.S.
By casting their votes, millions of Americans demonstrated faith in Trump’s ability to revert the economy back to the lower prices and stability they associate with his first term prior to the COVID-19-induced recession of 2020. While inflation has notably decreased in recent months, many Americans continue to grapple with high costs that persist. “His record was largely positive, and people reflect on it wanting a return to that,” expressed a former economic adviser and think tank president, suggesting that many voters are looking for a repeat of past successes.
Since the election, the Dow Jones Industrial Average has surged over 1,700 points, driven by anticipations that tax reductions and a relaxation of regulations will foster economic growth and enhance corporate earnings. However, numerous economists caution that Trump’s agenda may exacerbate inflation, inflating the federal deficit and potentially hindering economic expansion.
According to estimates from the Peterson Institute for International Economics, Trump’s policies may lead to a reduction in the U.S. Gross Domestic Product (GDP) ranging from $1.5 trillion to $6.4 trillion through 2028. The Institute predicts that if his plans are fully implemented, inflation could escalate to between 6% and 9.3% within two years, rather than a projected 1.9% in 2026. A cohort of 23 Nobel-winning economists recently cautioned that a Trump administration could prompt rising prices, increased deficits, and heightened inequality.
Despite ongoing struggles with high consumer prices, the economy appears robust, with a growth rate of 2.8% between July and September and an unemployment level of 4.1%, deemed low relative to historical averages. The International Monetary Fund observes that only Spain is expected to grow at a faster rate among wealthy nations this year. The Federal Reserve has expressed assurance about moderating inflation, taking steps to cut its benchmark interest rate recently.
Nonetheless, consumers are still feeling the impact of the inflation spike, as current prices are on average 19% higher than they were before the inflationary period began in 2021. Rising grocery costs and rent continue to impose financial strains, particularly on lower-income families. Although adjusted hourly wages have seen increases over the past two years, they remain below pre-Biden levels. A recent nationwide survey indicated that a significant portion of voters feels economically worse off, with concerns about rising costs of essential goods and services prevalent.
The paradox lies in the apprehensions of mainstream economists, who fear that Trump’s proposed solutions could worsen inflation instead of alleviating it. Central to Trump’s economic plan is the notion of taxing imports as a means to narrow America’s trade deficits while compelling other nations to comply with U.S. demands. Plans for substantial tariffs on Chinese goods and a proposed universal tax on all imports are at the forefront of his agenda. However, the reality is that American companies end up paying these tariffs and subsequently raise prices for consumers, leading to inflationary pressures.
Research estimates that a 60% tax on Chinese goods along with a 20% tariff on other imports could result in an after-tax burden of $2,600 per year for the average American household. This economic fallout could reverberate globally, significantly impacting U.S. trade relationships and economies of other countries as well.
In addition to tariffs, Trump’s vow to deport millions of undocumented workers poses a risk to the labor market. The Congressional Budget Office has reported a net immigration surge this past year, signaling that labor needs are being met. Economists note that increasing the workforce via immigrants has enabled job creation without simultaneous inflation spikes. Estimates suggest that removing all undocumented workers could lead to a $5.1 trillion reduction in GDP over the next few years while raising inflation further.
Moreover, Trump’s plans for extensive tax cuts, such as extending 2017 cuts and eliminating various taxes, could worsen the federal deficit. Projections estimate an increase of approximately $5.8 trillion in budget deficits over the next decade, with long-term implications for federal revenue sustainability due to an aging population and prior tax cuts. Concerns grow among some economists regarding Trump’s willingness to directly address the necessary measures to balance the federal budget in a way that does not further exacerbate inflation and deficits.
Overall, as America navigates through complex economic challenges and a changing political landscape, the implications of proposed policies remain significant and multifaceted.