A new study warns that Trump economic policies could significantly increase inflation. The Peterson Institute for International Economics analyzed the potential impact of tariffs, mass deportations, and interference with the Federal Reserve. According to the report, these policies could worsen inflation and cause massive job losses. While Trump’s policies aim to fix the affordability crisis, the study indicates they may backfire, leading to higher inflation and weaker economic growth.
The report highlights that inflation could surge if Trump’s proposed policies are enacted. Key elements, such as deportation and tariffs, would disrupt the labor market and supply chains. The study also warns that interfering with the Fed’s independence could make inflation worse, potentially harming the U.S. economy for decades.
The Inflation Impact of Trump Economic Policies
One major concern raised by the study is the inflation impact of Trump economic policies. Researchers project that inflation could hit 6% by 2026. By 2028, consumer prices might be 20% higher than they would be otherwise. Trump’s across-the-board tariffs and plans for mass deportation would fuel this inflationary surge.
The proposed tariffs, which range from 10% to 20% on U.S. imports and a massive 60% on goods from China, would increase the cost of goods. Producers would pass these costs onto consumers, making everyday items more expensive. This inflation impact would affect a wide range of industries and products.
Tariffs typically create inefficiencies and raise prices for consumers. The Peterson Institute study echoes this, emphasizing the tariff consequences that could hit American households. If foreign nations retaliate with their own tariffs, the U.S. could face a severe economic downturn.
Deportation Effects on the Labor Market
The deportation effects of Trump economic policies also raise concerns about inflation and employment. Trump has proposed deporting millions of undocumented workers, believing this would help lower inflation and secure jobs for Americans. However, the study suggests the opposite may occur.
Many industries, particularly agriculture, rely heavily on immigrant labor. An estimated 16% of workers in agriculture are undocumented. Removing such a significant portion of the labor force would create a worker shortage, driving up the cost of production. In turn, this would make food and other products more expensive, further increasing inflation.
The study presents two scenarios: In the “low” case, 1.3 million workers would be deported, leading to a 2.7% drop in employment by 2028. In the “high” case, with 8.3 million deportations, employment could drop by as much as 9%. These deportation effects would strain industries and push prices higher.
Tariff Consequences: A Blow to Manufacturing
Trump economic policies also emphasize tariffs as a way to revive U.S. manufacturing. However, the study shows that the tariff consequences could actually hurt the very industries Trump seeks to protect. High tariffs on imports would make U.S. products more expensive both domestically and internationally.
For manufacturers that rely on imported materials, tariffs would raise production costs. This would lead to higher prices for U.S.-made goods, reducing their competitiveness. Moreover, if other countries impose retaliatory tariffs, American exports could face even higher barriers, shrinking their global market.
The Peterson Institute report highlights that U.S. manufacturing, instead of benefiting from tariffs, would suffer more than any other sector. The long-term tariff consequences could include fewer jobs, higher prices, and a less competitive manufacturing base.
Fed Independence and Inflation Control
A major concern raised in the study is the potential erosion of Fed independence. Trump has hinted that he would like to have more control over the Federal Reserve’s interest rate decisions. While Trump’s goal is to spur economic growth, the study suggests that such interference could lead to runaway inflation.
Countries with independent central banks, like the U.S., generally maintain lower inflation rates. The Federal Reserve uses interest rate adjustments to manage inflation and keep the economy balanced. If Trump were to pressure the Fed to keep rates artificially low, it could encourage excessive borrowing and spending, driving inflation higher.
The study compares this scenario to Argentina, where political interference in central bank policy has led to soaring inflation. The loss of Fed independence could create similar challenges for the U.S., making it harder to control inflation in the future.
Long-Term Economic Consequences of Trump Economic Policies
The Peterson Institute study concludes that the long-term consequences of Trump economic policies could last for decades. Even if Trump’s measures are implemented in a single term, their impact could stretch into the 2040s. By 2040, the study projects that prices could be 41% higher than under alternative economic policies.
The combination of tariff consequences, deportation effects, and weakened Fed independence would have a profound and lasting effect on the U.S. economy. As inflation rises, American consumers and businesses would face higher costs. At the same time, employment opportunities would shrink as industries struggle to adapt to the new economic landscape.
Other countries might benefit from these U.S. economic challenges. As American industries suffer, foreign competitors could step in to fill the gaps, further weakening the U.S. position in the global market.
Political Reactions to Trump Economic Policies
Despite the warnings from economists, Trump remains popular with voters concerned about the economy. A recent poll by CNN shows that 50% of likely voters trust Trump to manage the economy, compared to 39% for Vice President Kamala Harris. Many of Trump’s supporters believe his policies will fuel growth and protect American jobs.
Trump’s campaign has dismissed the Peterson Institute study, pointing to past successes where expert predictions of economic doom did not materialize. The Trump team argues that tariffs and other economic measures will ultimately benefit the U.S. economy, even though the study suggests otherwise.
The debate over Trump economic policies continues, with economists warning of inflation and job losses, while Trump’s supporters remain hopeful that his proposals will improve the economy.
Conclusion: The Risks of Trump Economic Policies
The study by the Peterson Institute offers a sobering look at the potential inflation impact of Trump economic policies. The combination of mass deportations, high tariffs, and interference with Fed independence could create a perfect storm of inflation, job losses, and weakened economic growth. While Trump’s policies may appeal to voters in the short term, the long-term risks could be significant.
The tariff consequences alone could lead to higher consumer prices and reduced competitiveness for U.S. goods. Similarly, the deportation effects would leave industries short on labor, pushing production costs higher. And without Fed independence, controlling inflation would become even more difficult in the future.
As the 2024 election approaches, voters must carefully consider the potential risks and rewards of Trump economic policies. The consequences could shape the U.S. economy for years to come, with far-reaching effects on inflation, employment, and global competitiveness.
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This post is originally published on EDGE-FOREX.
