Economy

What would Donald Trump do to the economy?

Donald Trump’s public statements are often described as “inconsistent.” When he talks about his economic policy, a better description would be “non-committal.” Last week, during two hours at the Detroit Economic Club, he presented a new tax proposal, aimed at appealing to the Motor City and its customers: making interest payments on tax-deductible car loans. He also talked excitedly about his plans to impose higher taxes on goods imported into the United States, often referred to as “tariffs.” He said: “It is one of the most beautiful words in the world.” It will make us rich again.

Earlier this year, Trump pledged to impose tariffs of 10 percent on imports and 60 percent on Chinese imports. But there are many other images floating around, too. In his Detroit speech, he said, referring to China, “We’re going to go cold turkey, and we’re going to go with one hundred and one hundred and fifty percent tariffs.” Speaking about his intention to ban cars made by Chinese companies in Mexico from entering the US, he added, “I will charge whatever tariffs are necessary, one hundred percent, two hundred percent, a thousand percent.”

As always with Trump, the usual warning applies: don’t take him literally but take him seriously. As the campaign progressed and he increased his rhetoric, particularly on business, his Wall Street supporters suggested he was exaggerating for strategic reasons. “My general view is that at the end of the day, I’m a free trader,” Scott Bessent, a hedge-fund manager who advises Trump, told Financial Times last week. “More and more and less.”

Such comments suggest wishful thinking or self-indulgence. Since Trump announced he was running for a second term, he has made three big promises to his supporters: tariffs, tax cuts, and mass deportations. He also promised to clear any unused money from the Biden Administration’s Inflation Act of 2022, which provided a tax credit of up to seven thousand five hundred dollars for the purchase of electric vehicles and incentives. some funding for green production. In addition, he has repeatedly confirmed that he has the right to rely on the Federal Reserve, which is said to have no political influence when it sets interest rates. As the campaign progresses, he has doubled down on all of these strategic positions.

The actual results would depend on which measures Trump passed, and it is difficult to predict. The ten percent fee charged to some of our main partners and business partners will be less inflation than the general fee of fifteen or twenty percent. Deporting a million workers would have much less effect on the labor supply than deporting ten million. (Of course, any mass deportation would have a significant impact on those deported and their families.) Trump’s ability to implement his tax plan would depend on the results. some of the options: if the Democrats control at least one chamber of Congress, he would have a lot of things. less freedom of movement.

Another complicating factor is that some of Trump’s policy proposals have been watered down in different ways. Tariffs would raise prices and reduce consumer spending power. Mass deportations would reduce the labor supply everywhere. Both of these are “supply-side,” and have a negative impact on GDP and employment. In the short term, at least, the tax cuts will raise demand and act as a stimulus. So, it is important to consider the suggestions together.

Many economists have tried to do this, and their results are quite consistent. They show that a combination of Trump’s policies could weaken GDP and job growth, raise inflation, and damage the budget. Moody’s assessed the state of the Republican sweep, in which Trump would permanently extend the GOP’s 2017 tax cuts, deport more people, and impose 10 percent tariffs on imports and sixty percent on Chinese goods. Between 2024 and 2028, the analysis concluded that inflation-adjusted GDP will grow at an annual rate of 1.3% — significantly lower than the 2.8% annual rate seen since Joe Biden took office . Analysts at the Penn Wharton Budget Model fed Trump’s campaign promises into their computers and extended the forecast up to ten years. They predicted a smaller impact, but it was still bad: in 2034, GDP would be 0.4 percent lower compared to the baseline, and the amount of debt would rise by 9.3 percent.

In some cases, the effect can be worse. Trump seems oblivious to the dangers of provoking a global trade war. Even if he were to introduce the smallest fees he has talked about – ten percent and sixty percent – the rate of interest would rise from three percent to about ten percent. nine, according to Moody’s. That would be the highest rate since Congress passed the Smoot-Hawley Tariff Act of 1930, which led to foreign retaliation that many economic historians say deepened the Depression. Great Economy. In Trump’s speech in Detroit, he dismissed this comparison, mistakenly saying that US tariffs were not introduced until 1932.

Most economists do not hesitate. Recently, three researchers working with the Peterson Institute for International Economics used a mathematical economic model to analyze two policy scenarios, including a “high mix” in which Trump’s tariffs were set at rates of ten and sixty percent; foreign countries retaliated; 8.3 million workers were deported; and Trump succeeded in ending the independence of the Fed, which made it lower the policy and monetary funds to escape the US Under this situation, analysts concluded that, in 2026 the rate of inflation would have risen by more than seven points relative to the baseline – a huge jump and similar to what we saw in 2021-22 after COVID a great plague. The impact on productivity and employment will also be significant. The original scenario, which included Congress extending the 2017 GOP tax cuts or an equivalent package, predicted that between 2024 and 2028 GDP would grow by two percent a year. Trump’s tariffs, layoffs, and Fed-bashing would be dangerous enough to wipe out all this growth, and actually cause the economy to slow down. The U.S. economy “would be 1% smaller in 2028 — the end of the four-year term of the second Trump administration — than in 2024,” according to the analysis.

Predictions like these should be considered predictions of what might happen, not what will happen. Economic forecasting is an uncertain art rather than a science. In 2016, economists warned of the dangers of President Trump, but, until this pandemic, the economy grew at a healthy rate with low prices. This isn’t 2016, though. Over the past eight years, many changes have left the American economy vulnerable to reckless policies.

For example, the deficit has doubled as a share of GDP, and the ratio of federal debt to GDP has risen from seventy-three to ninety-one. seven, which raises questions about the long-term viability of the country’s finances. . If Trump’s proposals were to be implemented, they would create another sea of ​​red ink. According to the Committee on Federal Budget Responsibility, his economic plan will cost fifteen billion dollars over ten years, with a median estimate of $7.5 trillion. Trump says tariffs and strong economic growth can generate enough money to close the gap, but that’s magical thinking.

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