Forbes Leadership Leadership Strategy Trump Trade And Immigration Policies Spell Higher Prices, Less Growth

Economists believe Donald Trump’s trade and immigration policies will lead to higher inflation and lower economic growth. Trump has pledged to raise prices for consumers, even though the cost of living remains a top economic concern among voters. Lower levels of legal immigration and attempts at mass deportation would reduce the supply of available workers, creating economic problems. Trump Promises Higher Consumer Prices Donald Trump said he would impose a universal 10% tariff on imports and raise tariffs on goods from China by 60% or more. A tariff is a tax paid by U.S. consumers, including businesses that use imports, such as steel, to make other products. The higher costs cause people and businesses to pay more for goods and encourage other countries to raise tariffs, making U.S. products less competitive in foreign markets. Tariffs also make the economy and companies less efficient by shielding domestic producers from competition. “The tariffs would reduce after-tax incomes by 3.5% for those in the bottom half of the income distribution and cost a typical household in the middle of the income distribution about $1,700 in increased taxes each year,” according to economists Kimberly Clausing and Mary E. Lovely in a report for the Peterson Institute. “If executed, these steps would increase the distortions and burdens created by the rounds of tariffs levied during the first Trump administration (and sustained during the Biden administration), while inflicting massive collateral damage on the U.S. economy.” PROMOTED According to the Peterson Institute, “Former President Trump recently mused that he might impose even higher tariffs than earlier proposed. A 20% across-the-board tariff + 60% tariff on China would cost a typical US household more than $2,600 a year, up from the $1,700 if it was 10%.” How Trump’s Trade Policies Could Increase Inflation Reducing companies’ ability to increase the supply of goods by raising the price of inputs would hinder the fight against inflation. “There is one and only one basic cause of inflation: too high a rate of growth in the quantity of money—too much money chasing the available supply of goods and services,” wrote economist Milton Friedman. MORE FROMFORBES ADVISOR Best High-Yield Savings Accounts Of 2024 ByKevin PayneContributor Best 5% Interest Savings Accounts of 2024 ByCassidy HortonContributor Reducing the amount of money in circulation can reduce inflation, which the Federal Reserve attempts to address through monetary policy. Given the same money supply, anything that hurts the production of goods and services, such as tariff increases, will be inflationary, notes economist Mark Regets, a senior fellow at the National Foundation for American Policy. CEO: C-suite news, analysis, and advice for top decision makers right to your inbox. Email address Sign Up By signing up, you agree to receive this newsletter, other updates about Forbes and its affiliates’ offerings, our Terms of Service (including resolving disputes on an individual basis via arbitration), and you acknowledge our Privacy Statement. Forbes is protected by reCAPTCHA, and the Google Privacy Policy and Terms of Service apply. Other economists agree with Regets. “’If Trump increases tariffs as he has proposed, the economy would likely suffer a recession soon thereafter,’ said Mark Zandi, chief economist at Moody’s, adding that this includes the impact of very likely retaliation from other nations,” reports CNN. “Inflation, a sore spot for families and the economy at large, would increase by 0.7 percentage points in the year after the tariffs are implemented, according to Zandi’s forecasts.” The video player is currently playing an ad. You can skip the ad in 5 sec with a mouse or keyboard “Risks around inflation linked to tariffs are demonstrably higher today than in 2016,” said Joe Brusuelas, chief economist at RSM. “A new Trump administration would bring a round of trade wars that reduce GDP [gross domestic product] growth and raise prices, while a Harris victory would bring a more steady-as-she-goes economic policy, two Wall Street forecasting teams say in new reports,” according to Axios. Goldman Sachs cited Trump’s proposed trade and immigration policies as likely reducing economic growth by 0.5 percentage points. Economists at Nomura “estimated that higher tariffs would increase inflation by 0.75 percentage points in 2025.” Washington Post columnist Catherine Rampell warns that another problem is that Donald Trump wants to interfere with the Federal Reserve’s role in setting interest rates. “This should be a five-alarm fire for anyone who claims to care about inflation,” she writes. Trump has expressed a desire to be treated “as an ex officio member of the central bank’s rate-setting committee,” which would follow his lead on interest rates, reports the Wall Street Journal. Former Treasury Secretary Lawrence Summers believes populist interference with the Federal Reserve’s independence would lead to “higher inflation expectations” that would become “self-fulfilling.” Immigration Policies Reducing immigration would also likely lead to higher inflation, as we saw following the Covid-19 pandemic and Trump’s immigration policies. Federal Reserve Board Chair Jerome Powell said in a November 2022 speech that a contributing factor to inflation was the “labor supply shortfall,” noting, “The combination of a plunge in net immigration and a surge in deaths during the pandemic probably accounts for about 1-1/2 million missing workers.” (Some economists place the number of missing workers higher.) During a second Trump administration, the United States will almost certainly admit fewer legal immigrants than today. In his first term, Trump admitted a historically low number of refugees. He used presidential authority under 212(f) (of the Immigration and Nationality Act) to block many immigrants from majority-Muslim countries. During the pandemic, Trump used 212(f) authority to deny the entry of family and employment-based immigrants and high-skilled professionals on H-1B and L-1 visas, limiting companies’ access to needed talent. Even before that, denial rates for high-skilled visas more than tripled under Trump. Research shows such restrictions lead companies to offshore engineers and other workers to Canada, India and elsewhere. “Think about the first term, but on steroids,” said a former senior Trump administration official drafting immigration plans for a second term, according to CNN. The combination of the Trump administration’s immigration restrictions and the Covid-19 pandemic lowered the number of foreign-born workers and reduced economic growth or real GDP growth, which increases with growth in the U.S. labor force and productivity. An NFAP study by University of North Florida economics professor Madeline Zavodny found, “U.S. real GDP would have risen by up to an estimated 3.2 percentage points in 2022 if the working-age foreign-born population had continued to grow at the same rate it did during the first half of the 2010s.” U.S. real GDP rose by only 1.9 percentage points in 2022. Reducing immigration would likely be even more harmful to economic growth in a second Trump term. The U.S.-born labor force, on average, is older than when Trump took office in January 2017, meaning more people will stop working. The percentage of the U.S. labor force that is foreign-born rose from 17.1% to 18.6% between 2017 and 2023, according to the Bureau of Labor Statistics. Immigrant workers are responsible for 88% of the labor force growth in the United States since 2019, according to an NFAP analysis. Trump’s plans for mass deportation of the undocumented population will also affect the economy. Approximately 8 million unauthorized immigrants work in America, with most living in the United States for more than a decade. Economists believe removing millions of workers from the U.S. labor force will reduce investment and lead to fewer jobs for U.S. workers. Economists note that increased immigration can curb inflation. “Inflation occurs when the demand for goods and services grows faster than supply,” said NFAP’s Regets. “Increasing our ability to produce by increasing the supply of labor is the least painful way to control inflation.” For more information, visit us at https://www.beverlyhillsimmigrationlaw.com/.