Trump’s policies would hurt the US while boosting most other economies

Former president Donald Trump portrays the United States as the victim of foreigners. He suggests he would right the scales through mass deportations, steeper tariffs, and influencing Federal Reserve policies, and that foreigners would pay the price of these policies.

A new PIIE working paper finds that, on the contrary, these policies implemented together would harm the US economy while benefiting most others around the world.

The United States, China, and Mexico would each see lower GDP than otherwise by 2028, the end of a four-year Trump term, according to research by Warwick McKibbin, Megan Hogan, and Marcus Noland. Meanwhile, all the 21 other countries and regions analyzed would see higher GDP than if the policies were not adopted.

Economic growth would be slowed in China and Mexico primarily by the higher tariffs, the authors found. Other countries and regions with less US trade would be less affected by the tariffs. Those others would attract higher capital inflows as investors, reacting to the erosion of Fed independence, seek to invest in countries with less exposure to the United States, providing a boost to GDP.

The authors used a model to generate a baseline economic forecast—including variables such as GDP, employment, and inflation—for each of the 24 countries and regions. They used the model to project the effects, measured as deviations from the baselines, of three possible sets of Trump policies under different scenarios. They assumed the 2017 tax cuts enacted in Trump’s first term are extended or that some equivalent Democratic tax package is enacted.

Policies Analyzed

The authors examined three sets of possible future Trump policies because of their potentially significant US and international economic implications:

• Deporting 1.3 million or 8.3 million unauthorized immigrant workers.
• Increasing tariffs on all US imports by 10 percentage points and boosting tariffs on US imports from China by 60 percentage points, with or without other countries retaliating by imposing higher tariffs on their imports from the United States.
• Increasing the president’s influence over the Fed.

The model projected each policy’s economic effects separately and in combination.

If implemented individually, each policy has different impacts on the US and other economies. The tariffs harm all of them. The deportations would hurt the US economy but have only minor effects on others. In contrast, the erosion of Fed independence would benefit economies that receive inflows of financial capital that would otherwise have gone into expanding the US economy's production capacity. These offsetting effects mean that some countries gain on balance and some lose in the combined scenarios.

The paper’s findings are summarized here, and the isolated effects of the mass deportations are detailed here. Explore the online dashboard here to see the full macroeconomic and sectoral results for all countries and regions.

Combined Policies’ Effects

The authors also created two scenarios to examine what would happen if Trump implemented these policies together. In the “low” combination scenario, both the 10 and 60 percentage point increases in tariffs are imposed, foreign countries do not retaliate, 1.3 million workers are deported, and the Fed’s independence is eroded. In the “high” combination scenario, the same tariff increases are enacted, other countries retaliate, 8.3 million workers are deported, and the Fed’s independence is eroded.

In both combination scenarios, the US economy suffers the most damage, with GDP sinking to 2.82 or 9.65 percent lower than baseline by 2028.

In China—which would bear the brunt of Trump’s tariffs—GDP would decline 0.5 to 0.74 percent below baseline by 2028. In Mexico—which depends greatly on commerce with the United States—GDP would be 0.03 to 0.56 percent lower than baseline.

Every other country or region examined would see GDP higher than baseline in 2028, according to the model. Turkey and Russia, which do not have much US trade, come out on top because of strong capital inflows into agriculture and manufacturing, increasing capital investment overall. The model, however, does not take into account the effects of financial sanctions on Russia.

The table below shows the results.  

The authors find that Trump’s policies would hurt US households and businesses by lowering employment and fueling higher inflation, hitting hardest the agricultural and durable goods manufacturing sectors because they rely on global trade and investment.

“In sum,” they write, “while Trump promises to ‘make the foreigners pay,’ our analysis shows his policies will end up making Americans pay the most.”