Donald Trump is on pace to win back the White House next year on the strength of his anti-inflation message. Which is a little odd, since the Republican candidate’s economic platform amounts to a plan for drastically increasing consumer prices.
Trump has led Joe Biden in the last eight national polls of the likely 2024 presidential race. In the RealClearPolitics polling average, the Republican leads the Democrat president by 1.6 points. And his lead in swing states is higher, according to recent surveys from Bloomberg News and the New York Times.
Obviously, there are many reasons why voters might prefer Trump over Biden. They could believe that a fetus is a person, or that climate change is a hoax, or that the U.S. president should be a vassal of the House of Saud.
But the primary driver of Trump’s support — especially among swing voters — is his superlative credibility on economic issues. Voters rank “the economy” and “inflation” as their top concern in every major survey. And they consistently express more faith in Trump’s competence on those issues than Biden’s. In a Bloomberg–Morning Consult poll from last month, swing-state voters favored Trump over Biden on the economy by a 15-point margin and trusted the Republican more than the Democrat to best handle the cost of everyday goods and services by 12 points. Those results are in line with the findings of various other surveys of both battleground states and the nation as a whole.
Voters’ faith in Trump’s price-management bona fides may rest on nostalgia for the 2019 economy, antipathy for Biden, or the belief that The Apprentice was a documentary. One thing it most certainly does not rest on, however, is an accurate understanding of the Trump 2025 agenda’s macroeconomic implications.
That agenda includes imposing a 10 percent tariff on all foreign-made goods, enacting large deficit-financed tax cuts, and slashing America’s foreign-born labor force through mass deportations and immigration restriction. Taken together, this constitutes a recipe for a drastic increase in U.S. consumer prices.
Trump has promised to put “a ring around the U.S. economy.” By this, the Republican means that he will impose a universal tariff of roughly 10 percent on all foreign imports, according to the Washington Post.
It is theoretically possible for the cost of a tariff to be borne entirely by foreign producers rather than domestic consumers. When China imposed tariffs on American soybeans during the Trump years, U.S. farmers were unable to fully shift the burden of those levies onto Chinese consumers. This was because there are many soybean exporters in the world, many of which could sell into the Chinese market without being subject to significant tariffs. In order to remain competitive with these other producers in China, American farmers were forced to lower prices and accept thinner profit margins.
But when you impose high tariffs on all goods from every exporter, your nation’s consumers will inevitably suffer higher prices. Americans consume many foreign-made specialty products that are currently much cheaper than any domestic alternative. Since U.S. buyers have nowhere else to go, specialty exporters subject to tariffs feel little need to lower prices in order to offset the value of the duties.
Indeed, multiple studies of Trump’s tariffs on Chinese goods — including specialities such as silk embroidery — found that U.S. consumers paid roughly 100 percent of their costs.
What’s more, in addition to the immediate costs of tariffs, such duties also have second-order effects that further increase prices: When American producers no longer have to compete with lower-cost foreign exporters, they can raise the prices of their goods without losing market share. In fact, this is the whole point of tariffs as a tool for industrial policy. If you insulate domestic producers from competition, thereby allowing them to increase prices, then investors will put more money into these increasingly profitable domestic enterprises. Over time, that will grow the nation’s productive capacity in the protected industry.
There are potential problems with this strategy, not least that foreign nations tend to respond to tariffs with retaliatory duties. But as a means of building up a select number of critically important industries, tariffs can be useful. They accomplish this goal, however, by increasing prices for U.S. consumers. Put differently, tariffs tend to transfer income from consumers to domestic producers by reducing the former’s purchasing power and juicing the latter’s profits.
There may be discrete cases where this trade-off makes sense. But applying a 10 percent tariff on everything constitutes a plan for prioritizing high U.S. manufacturing profits above affordable prices to a radical extent. Therefore, the candidate whom voters most trust to lick inflation is literally campaigning on a plan to make virtually all goods more expensive.
The cornerstone of Trump’s economic agenda — which is to say, the part with the most avid support of congressional Republicans — is massive tax cuts. Trump’s 2017 tax package included many provisions that are set to expire. Merely extending these tax cuts would increase the federal deficit by $3.3 trillion over the next decade, according to the Committee for a Responsible Federal Budget (CRFB).
But Trump is not content to simply prevent his previous tax policies from expiring. He and his advisers have been discussing an additional cut to the corporate rate, bringing it down from 21 percent to 15 percent. Such a cut would reduce federal revenue by $522 billion under conventional assumptions, and $377 billion if one posits that the rate cuts would increase economic growth, according to the Tax Foundation, a conservative think tank.
In the likeliest scenario, then, Trump’s desired tax cuts will cost nearly $4 trillion. His tariff proposal, meanwhile, would bring in an estimated $2 trillion in revenue, according to CRFB. That leaves a nearly $2 trillion hole, which the Republican Party has few politically tenable ideas for filling.
The GOP is eager to scrap Biden’s tax credits for green technologies, such as electric vehicles. But ending the EV credit only nets you a little more than $30 billion in revenue over ten years. Repealing every climate program in the Inflation Reduction Act yields roughly $369 billion.
Perhaps a unified GOP government would find a way to slash federal spending by nearly $2 trillion without touching Medicare or Social Security, programs that Trump has sworn to protect. But this would require draconian cuts to an enormous range of discretionary programs. If history is any guide, Republicans will struggle to find the votes for such austerity and “pay for” their tax cuts with a few reductions to programs for the poor and baseless presumptions of higher economic growth.
When Congress cuts taxes by more than it cuts spending, it injects more purchasing power into the economy. This then puts upward pressure on consumer prices. Granted, taken together, Trump’s tax plan won’t increase everyone’s purchasing power; for lower-income Americans, the cost of the president’s tariffs will exceed any benefit they derive from his tax cuts. Nevertheless, by showering cash on the relatively well-to-do, Trump’s plan would likely increase consumer demand, even as it prevented American consumers from freely availing themselves of the global supply of manufactured goods. Meanwhile, as Matt Yglesias notes, Trump vigorously opposes many supply-expanding reforms, such as loosening zoning restrictions that engineer housing shortages or allowing foreign ships to deliver goods via America’s domestic water routes (which are currently reserved for American carriers due to the Jones Act, a law that increases shipping costs for U.S. consumers).
By constraining the economy’s productive capacity while increasing consumer demand, Trump’s agenda would put upward pressure on prices. This would have especially negative consequences for the poor and working class, who will derive little benefit from the president’s tax cut, even as they pay the costs of high tariffs and an elevated price level.
From the moment he announced his candidacy in 2015, Trump has made immigration his signature issue. As president, he succeeded in reducing inflows of foreign-born workers to the United States (with no little help from the pandemic). But he failed to realize the nativist right’s grand policy ambitions. He enacted no statutory reductions in legal immigration and did not deport undocumented immigrants en masse.
He and his advisers plan to change that, should they get a second lease on the White House. As the New York Times reports, Trump’s team has crafted a plan to drastically reduce America’s foreign-born population through assertions of executive authority alone.
Stephen Miller, the architect of Trump’s immigration policies, has sketched an agenda that would use creative interpretations of existing statutes to facilitate the deportation of millions of immigrants per year. At present, America’s capacity to deport undocumented immigrants en masse is constrained by their due process rights and an overburdened judicial system. Miller and Trump plan to address this by scaling back such rights. Under their plan, undocumented immigrants who have been in the U.S. for less than two years would be subject to expedited removal, and thereby denied the opportunity to challenge their deportation through hearings.
Existing law makes it harder to rapidly remove longtime U.S. residents. But Trump has a plan to get around that. First, he would scale up workplace raids and other sweeps of public places where undocumented immigrants are thought to be. Then, he would consign such immigrants to indefinite detention in sprawling camps. These immigrants would still retain their right to challenge their deportation in court, through a process that can take years. But they would need to wait out that legal process in detention. Miller’s bet is that this will effectively enable the expedited deportation of longtime U.S. residents, who will prefer exile to de facto imprisonment.
Miller believes that the president already has the statutory authority to order the military to construct these vast detention centers, drawing on funds that have already been appropriated.
At the same time, Trump plans to revoke Temporary Protected Status from 610,000 longtime U.S. residents. TPS recipients are people who were legally admitted to America as a result of social crises in their home nations. Many of these immigrants have been in the United States for decades. And most proposals for bipartisan immigration reform in recent years would have given them permanent legal status. Nevertheless, Trump plans to hunt them down, then exile them to countries that no longer remotely qualify as their home.
Trump would also suspend America’s refugee program and declare all asylum seekers a public-health threat, so as to summarily deny their claims. He would also seek a reduction in legal immigration.
In my view, there are strong moral reasons for opposing this agenda. But even if one has no regard for the welfare of foreign-born, longtime U.S. residents, the economic implications of Trump’s program are quite bad.
The relationship between inflation and immigration is not entirely straightforward. Working-age immigrants expand America’s supply of labor. But they also increase economic demand by consuming goods and resources. In an aging country, however, the admission of working-age immigrants is likely to be deflationary on net.
Retired people consume goods and services, but do not contribute to their production. Thus, as the retired share of the population increases, labor demand can outrun supply. This can lead to labor shortages, which in turn lead to inflation. By allowing more working-age people to come to the United States, America can reduce this mismatch between labor demand and supply.
Disruptions in certain local economies during the pandemic illustrated how immigration restrictions can exacerbate such mismatches. The COVID emergency led white-collar employers to embrace remote work en masse. In response, large numbers of professionals migrated simultaneously from municipalities with high housing costs to ones with lower housing costs.
The rapid inflow of professionals to metro regions like Tampa and Phoenix increased labor demand in construction, leisure, and hospitality — goods and services that these remote workers were not themselves going to provide. Typically, immigrants help to assuage shortages in local labor markets, since they are much more likely to move to areas where jobs are abundant than native-born workers are. After all, the latter have strong attachments to existing U.S. communities and are therefore more reluctant to relocate on the basis of economic opportunity.
By plugging holes in local labor markets, immigrants increase productivity and efficiency. The Harvard economist George Borjas has estimated that these efficiency gains produce between $5 billion and $10 billion of economic value for native-born workers each year.
During COVID, however, inflows of immigrants plummeted. As a result, labor shortages in fast-growing areas persisted, and inflation ensued. As researchers at George Mason University have shown, price growth was notably higher in areas that saw population gains during the pandemic. And price growth in these metros was especially high in the sectors most traditionally reliant on immigrant labor.
Of course, labor shortages can give workers bargaining power. Price increases spurred by wage growth in undercompensated sectors is not a bad thing. In many cases, companies could plausibly attract native-born workers to fill open positions if they simply raised wages high enough. And yet, there are more foreign-born workers in the U.S. today than there are unemployed Americans. If you purged all of those workers from the country, we wouldn’t have the same economy but with higher wages; we’d have a smaller economy in which many of the jobs currently being performed simply would not get done. In concrete terms, this would translate into fewer home health aides to care for America’s elderly, fewer construction laborers to build new housing and infrastructure, fewer day-care workers to watch America’s children, fewer agricultural workers to harvest America’s produce, and fewer restaurant options for American diners, among many other things.
Trump’s plan to purge the nation of millions of immigrants would therefore make the nation collectively poorer, while driving up the cost of groceries and myriad vital services. Further, by juicing prices, Trump’s policies could lead the Federal Reserve to further hike interest rates in the hopes of quelling demand, which could eventually lead to looser labor markets, should the central bank trigger a recession.
The mainstream media isn’t exactly going easy on Donald Trump. America’s top newspapers have subjected him to plenty of critical coverage. But scrutiny of the ex-president has tended to focus on his myriad legal woes, incendiary statements, and plans for corrupting federal law enforcement. This isn’t surprising, since the prospect of a convicted felon-in-chief turning the Justice Department into his personal detective agency is a bit more interesting than a Republican candidate campaigning on bad economic ideas. Given that inflation is the American electorate’s top concern, however, the fact that Trump is campaigning on a comprehensive plan for making stuff more expensive should really be getting more attention.
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