Donald Trump is returning, and the US economy is in for a wild ride.
Trump has promised an escalation of tariffs on all US imports and the biggest mass deportation of migrants in history. He also wants a say in Federal Reserve policy. Many economists reckon the platform adds up to higher inflation and slower growth ahead.
It’s Trump’s tariffs – which he’s threatened to slap on adversaries and allies alike – that stand to have the biggest impact on US economy, analysts say. The self-proclaimed “tariff man” enacted duties on about $380 billion in imports in his first term. Now he’s promising much wider measures, including a 10% to 20% charge on all imported goods and 60% on Chinese products.
Trump says import taxes can help raise revenue, as well as reduce US trade deficits and re-shore manufacturing. What’s more, as Trump demonstrated last time he was in office, a president can enact tariffs essentially single-handedly. “He’s going to be off and running,” said Mark Zandi, chief economist at Moody’s Analytics. “We’re going to get these policies quickly and they’re going to have impact immediately.”
Most economists say inflation will rise as a result, as consumers will pay higher costs that are passed on by importers who pay tariffs.
Such a scenario will put the Fed in the position of wanting to raise interest rates to combat inflation, but also to cut rates to prevent the risk of a recession, said Jason Furman, former head of White House Council of Economic Advisers under Obama.
Trump will likely have thoughts on how the Fed should respond. He told Bloomberg he should have a “say” on interest rates, “because I think I have very good instincts.” Pressure on the Fed will worry investors, because history suggests countries that allow politicians to direct monetary policy are likely to face higher inflation.
Coalition for a Prosperous America, which supports trade protectionism, estimated a 10% “universal” tariff, combined with income-tax cuts Trump is promising, would add more than $700 billion to economic output and create 2.8 million jobs.
Trump’s threat to deport millions of undocumented migrants is another source of alarm. It would reduce the labour pool available to companies that have found it hard to hire. The impact would likely land hardest in industries like construction, leisure and hospitality – and states including Texas, Florida and California.
“We’re going to see significant chaos across the business landscape,” said Wendy Edelberg, director of the Brookings Institution’s Hamilton Project.