Former President Donald Trump has promised to attack the United States affordability crisis by imposing immense tariffs, carrying out unprecedented deportations and even influencing interest rate decisions.
However, a new analysis finds that the Republican presidential nominee’s plans for tariffs, deportations and the Federal Reserve would not only fail to solve inflation – they would make it much worse.
The Trump agenda would cause weaker economic growth, higher inflation and lower employment, according to a working paper released Thursday by the Peterson Institute for International Economics. In some cases, the damage could continue through 2040.
“We find that ironically, despite his ‘make the foreigners pay’ rhetoric, this package of policies does more damage to the US economy than to any other in the world,” the Peterson Institute working paper from researchers Warwick McKibbin, Megan Hogan and Marcus Noland concluded.
The paper represents the most comprehensive analysis to date on the combined impact of Trump’s trade, immigration and Fed proposals.
The findings are stark.
Even in a “low” scenario where only 1.3 million undocumented workers are deported and other countries opt not to retaliate against Trump’s tariffs, employment (measured as hours worked) would fall by 2.7% in 2028 relative to a baseline forecast, according to the paper.
Inflation would climb to 6% by 2026, the researchers found. By 2028, consumer prices are 20% higher.
US gross domestic product (GDP), the broadest measure of economic growth, would be 2.8% lower than otherwise by the end of Trump’s four-year term.
The researchers also modeled a “high” scenario that incorporates retaliatory tariffs from other nations and 8.3 million undocumented workers getting deported. In that scenario, employment would be 9% lower than baseline by 2028 and inflation would surge to 9.3% by 2026. GDP would be 9.7% lower than otherwise.
The changes proposed by Trump would “cause a large inflationary impulse and a significant loss of employment (particularly in manufacturing and agriculture) in the US economy,” the paper found, adding that in some cases benefits would be conferred onto other economies.
A loss of Fed independence would cause “permanently higher inflation” that “leads to ever-increasing prices across the US economy,” the paper said. By 2040, prices would be about 41% higher than otherwise, the researchers said.
The analysis assumes that the 2017 Trump tax cuts are extended, though it does not incorporate his proposals to end taxes on overtime, tips and Social Security benefits.
The No. 1 issue
The Trump campaign responded by reiterating its past argument that experts warning against Trump policies will ultimately be proven wrong.
“Time warp alert! Just like 2016, Wall Street forecasts said that Trump policies would result in lower growth and higher inflation, the media took these forecasts at face value, and the record was never corrected when actual growth and job gains widely outperformed these opinions,” Brian Hughes, Trump campaign senior advisor, said in a statement to CNN. “In fact, then – as now – Trump policies will fuel growth, drive down inflation, inspire American manufacturing, all while protecting the working men and women of our nation from lopsided policies tilted in favor of other countries.”
The Peterson Institute findings come as a CNN poll out this week finds that the economy remains far and away the No. 1 issue for voters. About 4 in 10 likely voters (41%) say the economy is the most important issue for them, well ahead of the next-closest issue of protecting democracy at 21%.
Despite warnings from mainstream economists about the damage that some of Trump’s economic policies would do, the former president still has an edge on the critical issue. Likely voters say they trust Trump over Vice President Kamala Harris to handle the economy (50% Trump to 39% Harris).
A Covid-like ‘shock’
The paper found that all three of Trump’s policies on immigration, trade and the Fed would “cause a decline in US production and employment…as well as higher US inflation.”
But the most damaging element of these policies would be his immigration crackdown.
Trump has called for deporting perhaps 15 to 20 million undocumented people in an effort to fight crime, bring down inflation and help workers.
“People pouring into the country are killing the jobs of Black and Hispanic people,” Trump said on Tuesday during a speech in Georgia.
McKibbin, a nonresident senior fellow at the Peterson Institute, told CNN in a phone interview that mass deportations would cause a Covid-like “shock” to the supply of workers. He noted that an estimated 16% of workers in agriculture are undocumented.
“Can you imagine taking 16% out of the labor force in agriculture?” McKibbin said, adding that the cost of food would go up. “And unless you let them back in, you will have a permanent loss of supply.”
‘Greatest things ever invented’
On the trade front, Trump has held up tariffs as a way to create a “manufacturing renaissance” in the US. He has proposed a 10% to 20% across-the-board tariff on all US imports as well as a 60% tariff on goods from China.
At an event in Michigan last week, Trump praised tariffs as the “greatest things ever invented.” In Georgia this week, Trump said the word “tariff” is “one of the most beautiful words I’ve ever heard.”
Yet the Peterson Institute research finds that Trump’s tariff and other plans would backfire – hurting manufacturing more than any sector. That means the same factory workers Trump says he is trying to help would be hurt the most.
“If other countries retaliate, as many likely would, a recession in the year after the increase in tariffs would be a serious threat,” Mark Zandi, chief economist at Moody’s Analytics, told CNN in an email.
Fed interference
In what would be a significant break from recent history, Trump has indicated that he would try to exert direct power over Fed policy on interest rates.
Last month, Trump said he feels “strongly” that the president should “have at least a say in there,” noting that he has “made a lot of money” and was “very successful.”
Trump later walked the comments back a bit, telling Bloomberg that a president “certainly can be talking about interest rates,” but that “doesn’t mean I’m calling the shots.”
The Peterson Institute researchers noted that the concern is that the president would “press the Fed” to keep rates artificially low to boost the economy.
The paper found that erosion of Fed independence would cause higher inflation, capital outflows, a significant loss of value for the US dollar and higher unemployment – all of which would “worsen American living standards.”
“Countries that have independent central banks have much lower inflation,” said McKibbin, noting that Argentina’s central bank has grappled with political interference and today it has the highest inflation in the world.
Fed Chair Jerome Powell, who was nominated by Trump in 2017, cautioned against any effort to interfere with Fed independence.
“People have found over time that insulating the central bank from direct control by political authorities avoids making monetary policy in a way that favors, maybe, people in office as opposed to people who are not in office,” Powell said in response to a question from CNN. “We do our work to serve all Americans. We’re not serving any politician, any political figure, any cause, any issue, nothing.”
