Experts warn that Trump's economic plan could fuel high inflation world news

Last month, the Peterson Institute for International Economics predicted that Trump's policies would dramatically increase consumer prices two years into his second term. Peterson's analysis concluded that inflation, which would otherwise register 1.9 percent in 2026, would rise to between 6 percent and 9.3 percent if Trump's economic proposals were adopted.

Many economists are also not enthusiastic about Vice President Kamala Harris' economic agenda. They, for example, reject his proposal to combat price increases as an ineffective tool against high food prices. But they do not consider his policies to be particularly inflationary.

Moody's Analytics estimates that Harris' policies will keep the inflation outlook largely unchanged, even though he enjoys Democratic majorities in both chambers of Congress. An unwavering Trump, on the contrary, would increase prices by 1.1 percentage points in 2025 and 0.8 percentage points in 2026.

Consumers pay for the tariff

Tariffs on imports are Trump's economic policy. He argues that tariffs protect American manufacturing jobs from foreign competition and provide many other benefits.

While in office, Trump started a trade war with China, imposing high tariffs on most Chinese products. He also increased import taxes on foreign steel and aluminum, washing machines and solar panels. He has even bigger plans for a second term: Trump wants to impose a 60% tariff on all Chinese products and a universal tariff of 10% or 20% on everything entering the United States.

Trump insists that the cost of taxing imported goods is absorbed by foreign countries. The truth is that US importers pay the tariffs and then typically pass that cost on to consumers in the form of higher prices. Americans themselves bear the costs.

Kimberly Clausing and Mary Lovely of the Peterson Institute calculated that Trump's proposed 60% tax on Chinese imports and his high-level 20% tariff on everything else would together impose an after-tax loss on the typical American household. $2,600 per year.

The Trump campaign notes that U.S. inflation has remained low despite Trump's aggressive tariffs as president.

But Mark Zandi, chief economist at Moody's Analytics, said the magnitude of Trump's current tariff proposal drastically changes the calculus. Trump's tariffs in 2018-19 did not have as big an impact, as tariffs on most Chinese imports were just over $300 billion,” he said. The former president is now talking about tariffs on more than 3 billion US dollars in imported goods.'

And the inflation scenario was different in Trump's first term, when the Fed feared that inflation would be too low, not too high.

Trump would reverse a wave of immigration that would help reduce inflation

Trump, who has made inflammatory comments about immigrants, has promised the biggest crackdown on deportations in US history.

Many economists have blamed rising immigration in recent years for helping to curb inflation.

The increase in foreign workers made it easier to fill vacancies. This helps cool inflation, reducing the pressure on employers to raise wages more quickly and bear higher labor costs through price increases.

Net immigration arrivals minus departures reached 3.3 million in 2023, three times more than the government expected. Employers need newcomers. As the economy recovered from pandemic lockdowns, companies struggled to hire enough workers to meet customer orders.

Immigrants filled the gap. Over the past four years, the number of people in the United States who have or are looking for a job has increased by nearly 8.5 million. About 72 percent of them were born abroad.

Wendy Edelberg and Tara Watson of the Brookings Institution found this by increasing the supply of workers. The influx of immigrants allows the United States to create jobs without overheating the economy.

In the past, economists estimated that American employers could not create more than 100,000 jobs a month without triggering inflation. But when Edelberg and Watson considered immigration growth, they found that without upward pressure on prices, monthly job growth would have been 160,000 to 200,000.

Trump's mass deportations, if carried out, will change everything. The Peterson Institute calculates that US inflation would be 3.5 percentage points higher in 2026 if Trump managed to deport all 8.3 million undocumented immigrant workers believed to be working in the US.

A political diet will make it difficult to combat inflation

Trump warned many economists in August that he would like to have a say in the Fed's interest rate decisions.

The Fed is the government's main inflation fighter. It attacks hyperinflation by raising interest rates to reduce borrowing and spending, slow the economy and cool the rate of price growth.

Economic research has shown that the Fed and other central banks can only manage inflation adequately if they are independent of political pressure. Given that raising rates could cause economic hardship, perhaps a recession, it is anathema to politicians seeking re-election.

As president, Trump frequently slammed Jerome Powell, his chosen Fed chairman, for cutting rates to try to stimulate the economy. For many economists, Trump's public pressure on Powell surpassed even the efforts of Presidents Lyndon Johnson and Richard Nixon to pressure previous Fed chairs to keep rates low, which were widely blamed for fueling the chronic inflation of the late 1960s and 1970.

A report by the Peterson Institute concluded that maintaining the Fed's independence would increase inflation by 2 percentage points per year.