Inflation: Expect Much Worse Under a Trump Administration

As mentioned in our last edition, kitchen table issues, those that affect our daily lives, are front and center for many in this election. Near the top of everyone’s list is the impact of inflation, the rise in prices for our most basic needs from food, insurance, utilities, housing, and gasoline to interest rates on car loans and housing.  
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There is no denying inflation has moved up during the last four years and the GOP is counting on that to sway voters.  The fact is that inflation will be an even bigger issue under a Trump Administration.

Former Treasury Secretary Larry Summers sees the risk of another price shock in the economic plans of Trump. “There has never been a presidential platform so self-evidently inflationary as the one put forward by President Trump,” Summers told The Atlantic in an interview. “I have little doubt that with the Trump program, we will see a substantial acceleration in inflation, unless somehow we get a major recession first.”

A growing number of economists and policy analysts are warning that Trump’s second-term agenda of sweeping tariffs, mass deportation of undocumented migrants, and enormous tax cuts would accelerate, rather than alleviate, inflation.

The nonpartisan Peterson Institute for International Economics, in a study released in May, calculated that the tariffs Trump says he will impose on imports would dramatically raise costs for consumers. “Trump is promising a no-holds-barred, all-out protectionist spree that will affect every single thing that people buy that is either an import or in competition with imports.” 

Economists are warning that his policies will wreak havoc on global trade and send inflation back up again.

• Imposing 10 percent tariffs on imported products from all countries and 60 percent tariffs on imports from China. Biden’s measures on China affect about $18 billion in Chinese imports, whereas Trump proposes to raise tariffs on $3.1 trillion in imported goods, more than 150 times as much. 

In the Peterson study, they calculated that Trump’s tariffs would raise prices for consumers on the goods they purchase by at least $500 billion a year, or about $1,700 annually for a middle-income family. The cost for consumers could be about twice as high if domestic manufacturers increase their own prices on the goods that compete with imports.

• Curbs on immigration that Republicans blocked earlier this year. Undocumented migrants are central to the workforce in an array of service industries, such as hospitality, child care, and elder care. But they also fill many jobs in construction, agricultural harvesting, and food production. Removing millions of undocumented workers from the economy at once “would create massive labor shortages in lots of different industries,” said Mark Zandi, Chief Economist of Moody's Analytics. That would force employers to either raise wages to find replacements or, more likely, disrupt production and distribution; both options would raise the prices consumers pay. “If you are talking about kicking 50 percent of the farm labor force out, that is not going to do wonders for agricultural food prices.”
• Trump seeking to devalue the dollar. A lower dollar means imports of goods are more expensive, this on top of the tariffs would vastly increase the cost of most of our goods.​
• Enlarging the federal budget deficit by extending the 2017 tax cuts. Here is what the deficit looked like under Trump 1.0 for reference.
  

Inflation, Zandi projects, would be nearly a full percentage point higher under the scenario of Trump and Republicans in control than in the alternative of Biden (now Harris) presiding over a divided government.
Sources: The Atlantic: Trump's Plan to Supercharge Inflation; Peterson Institute for International Economics: Policy Brief 24-1 Why Trump’s Tariff Proposals Would Harm Working Americans

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