Description
Former president Donald Trump has promised to improve Americans' lives if elected. But some of the policies he is promoting—deporting millions of people from the United States, steeper tariffs, and eroding the Federal Reserve's political independence—would have the opposite effects. These three policies combined would result in lower US national income, lower employment, and higher inflation than otherwise. In some cases, economic conditions recover over time, but in others the damage continues through 2040.
To show what would happen if Trump implemented these policies together, we examined two scenarios. In the "low" combination scenario, Trump imposes a 60 percentage point increase in tariffs on US imports from China and a 10 percentage point increase in tariffs on all other imports; foreign countries do not retaliate by hiking tariffs on their imports from the United States, 1.3 million workers are deported, and the president gains more influence over the Fed. 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 also eroded. We compared the results with a baseline US economic forecast of what would happen without those policies.
In the two scenarios, US real GDP will be between 2.8 and 9.7 percent lower than baseline by the end of Trump's four-year term in 2028. In terms of 2018 dollars, GDP is $750 billion to $2.57 trillion below baseline by 2028. GDP recovers a bit thereafter but remains lower through 2040, between 1.5 and 6.6 percent lower than baseline. The output loss hits manufacturing and agriculture in particular.
The combined policies cause the US inflation rate to climb to between 4.1 and 7.4 percentage points higher than otherwise by 2026. That means, on top of baseline inflation of 1.9 percent, inflation peaks then at between 6 and 9.3 percent. By 2028, US consumer prices generally are between 20 and 28 percent higher. The inflation rate settles at 2 percentage points above baseline, or almost 4 percent, from 2034 through 2040.
Trump proposes to help Americans through policies of mass deportations, trade protection, and greater presidential influence over the Fed. But these policies over time would leave the US economy generally worse off than if he did not enact them.
This PIIE Chart is adapted from Warwick McKibbin, Megan Hogan, and Marcus Noland's blog, "How much would Trump's plans for deportations, tariffs, and the Fed damage the US economy?"
