Former President Donald Trump campaigned to end the “inflation nightmare,” promising that if he won a second term, he would bring prices down “very quickly.” And if that scenario came to pass, it would be welcomed by the millions of Americans who say rising prices remain a major problem.
There’s one problem: The key policies underlying what’s known as “Trumponomics”—a combination of tariffs, tax cuts and immigration crackdowns—are likely to cause a surge in inflation, many Wall Street economists say. That would be a painful outcome for consumers and businesses, weakened by more than two years of soaring prices. More broadly, it would also bring new inflationary pressures as inflation finally cools. closer to the Federal Reserve’s target 2% per year.
But experts warn that Trump’s economic policies could stall or even reverse that progress. They note that tariffs effectively act as a drag on growth. consumption taxincreasing the cost of goods imported into the United States — costs that businesses typically pass on to consumers.
Meanwhile, Trump’s proposed deep corporate tax cuts could have an inflationary fiscal stimulus effect. Another central element — deporting immigrants — could force employers to pay higher wages to attract a shrinking pool of workers, which would also put further pressure on prices, economists told CBS MoneyWatch.
In such a case, the Fed could be forced to keep its benchmark rate elevated for longer, causing more difficulty for consumers and businesses seeking mortgages, auto loans or other credit products.
If consumers “are upset now, they’ll be upset a year from now” about inflation if Trump wins and implements his policies, Mark Zandi, chief economist at Moody’s Analytics and co-author of a June report on the macroeconomic impacts of a Trump or Biden victory in November, told CBS MoneyWatch.
Zandi, who has previously advised Presidential candidates from both parties have said he is not advising either campaign in the current race.
Where will inflation go in 2025?
If Republicans win an election victory that helps Trump implement his economic agenda, Moody’s forecast in its June analysis said the annual inflation rate would rise to 3.6% in 2025. By comparison, the most recent inflation data showed prices rising 3% in June.
If Biden wins and manages to continue with his agenda, inflation could fall to 2.4% next year, according to Moody’s forecast.
Of course, not everyone agrees with these projections. EJ Antoni, a researcher and public finance economist at the conservative Heritage Foundation, told CBS MoneyWatch that some economists are drawing their conclusions “without looking at the big picture.”
“As for what [Trump] “The administration has said publicly that this is about cutting federal income taxes and corporate taxes and essentially replacing them with tariffs,” Antoni said. “I understand the argument that tariffs are a tax on trade, but so is income tax. If all of these things are taxes on trade, do you want a tax on domestic trade or a tax on international trade?”
Under this vision, additional tax cuts would offset inflation caused by higher taxes on foreign goods. Trump has proposed a 10% general tariff on all U.S. imports, as well as a 60% tax on goods from China. As the 2024 Republican platform puts it, “as tariffs on foreign producers increase, taxes on American workers, families, and businesses can decrease.”
While Trump has advocated for cutting the corporate tax rate, telling Bloomberg News that he wants to reduce it from 21% to 15%, his plans for personal income taxes remain unclear. Trump has generally pledged to cut taxes, though many experts believe he would like to extend his 2017 Tax Cuts and Jobs Act, given that many tax cuts expire at the end of 2025.
During his presidency, Trump relied on his executive powers to enact tariffs, meaning he didn’t have to wait for Congress to pass legislation. Tax cuts, on the other hand, would have to be approved by both the House of Representatives and the Senate, posing a bigger hurdle for Trump to pursue that aspect of his agenda.
Who pays the rates?
According to the Peterson Institute for International Economics, a typical middle-class American household would face an estimated $1,700 in additional costs per year if Trump enacts these proposed tariffs.
But economists note that low- and middle-income households would feel the impact much more than high-income families. That’s because low-income people spend a lot of their money on goods and services, so tariffs would have a disproportionate impact on them compared to wealthy families.
“The burden is very uneven,” Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist, told CBS MoneyWatch.
Antoni, of the Heritage Foundation, pointed out that after Trump imposed tariffs on some imports during his presidency, inflation remained low. Indeed, inflation has held steady at an average rate of approximately 2% from 2017 to 2019Yet economists say the scale of his latest plan dwarfs his previous tariffs.
“What he’s proposing on tariffs goes way beyond anything he did in his first administration,” Coronado noted. “He’s proposing broad tariffs on all imports, and particularly tough tariffs on China, which are immediately passed on to consumers.”
Immigration: costs and benefits
The influx of immigrants has boosted the U.S. labor force at a time when the country faces demographic challenges, such as the aging of the baby boom generation. That has helped boost the labor market, which has helped moderate wage increases.
But Republicans want to deport millions of immigrants, a move that could disrupt the economy and the job market, Coronado said. “Deporting people is going to hit both supply and demand. You’re deporting people who are working and spending money in the economy, so growth is going to slow,” she said.
Antoni notes that immigrants bring increased costs to both the federal and local governments that would be eliminated if they were deported.
Of course, Trump has yet to detail most of his economic plans, including his personal income tax policy. So far, what is known about his agenda suggests that it could create conditions for inflation to rise, rather than fall as he has promised, economists said.
“Trump wants a combination of things that economists know don’t hold up,” Coronado told CBS MoneyWatch. “He’s promising, ‘I can have my cake and eat it too.'”
