Experts warn that Trump's economic plan could result in high inflation of world news

Last month, the Peterson Institute for International Economics predicted that Trump's policies would sharply raise consumer prices two years into his second term. Peterson's analysis shows that inflation, which would otherwise have been 1.9%. in 2026, would instead rise to between 6% and 9.3% if Trump's economic proposals are adopted.

Many economists are also not thrilled with Vice President Kamala Harris's economic agenda. For example, they reject his proposal to fight price increases, considering it an ineffective tool to fight high food prices. But they don't see his policies as particularly inflationary.

Moody's Analytics estimates that Harris' policies will keep the inflation outlook virtually unchanged even if he has Democratic majorities in both houses of Congress. By contrast, an unrelenting Trump would raise 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 flagship economic policy. He argues that tariffs protect American factory jobs from foreign competition and provide many other benefits.

While in office, Trump launched a trade war with China, imposing high tariffs on most Chinese goods. He also raised import taxes on foreign steel and aluminum, washing machines and solar panels. For his second term, he has even bigger plans: Trump wants to impose a 60 percent tariff on all Chinese goods and a 10 or 20 percent universal tariff on everything else entering the United States.

Trump insists that the costs of taxing imported goods are borne abroad. The truth is that U.S. importers pay tariffs and then typically pass those costs on to consumers in the form of higher prices. Americans bear the costs themselves.

The Peterson Institute's Kimberly Clausing and Mary Lovely calculated that Trump's proposed 60 percent tax on Chinese imports and his high 20 percent tariff on everything else would combine to leave the typical American household with an after-tax loss. $2,600 per year.

The Trump campaign notes that U.S. inflation remains low despite aggressive tariffs introduced by Trump as president.

But Mark Zandi, chief economist at Moody's Analytics, said the scale of Trump's current tariff proposal changes the calculation dramatically. Trump's 2018-2019 tariffs did not have as much of an impact because the tariffs on most Chinese imports amounted to just over $300 billion,” he said. The former president is now talking about tariffs on over $3 trillion worth of imported goods.

In turn, the inflation backdrop was different during Trump's first term, when the Fed was concerned that inflation was too low rather than too high.

Trump would reverse the immigration tide, which would help reduce inflation

Trump, who has made inflammatory comments about immigrants, has promised the largest deportation crackdown in U.S. history.

Many economists blame increased immigration over the past few years for helping to curb inflation.

The increase in the number of foreign-born workers has made it easier to fill vacancies. This helps cool inflation by reducing pressure on employers to raise wages faster and bear higher labor costs through price increases.

The number of net arrivals less departures amounted to 3.3 million in 2023, which is three times more than the government expected. Employers need new employees. As the economy rebounded from pandemic lockdowns, companies struggled to hire enough workers to keep up with customer orders.

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

Wendy Edelberg and Tara Watson of the Brookings Institution found that they were 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 U.S. employers could create no more than 100,000 jobs a month without causing inflation. But when Edelberg and Watson accounted for the increase in immigration, they found that without upward pressure on prices, monthly job growth would have been between 160,000 and 200,000.

Trump's mass deportations, if carried out, will change everything. The Peterson Institute calculates that U.S. inflation would be 3.5 percentage points higher in 2026 if Trump succeeds in deporting all 8.3 million illegal immigrants who are believed to be working in the U.S.

Political power will make the fight against inflation more difficult

In August, Trump warned many economists that he would want to influence the Fed's interest rate decisions.

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

Economic research has shown that the Fed and other central banks can only manage inflation properly if they are independent of political pressures. Because raising rates can cause economic problems and perhaps even a recession, it is anathema to politicians seeking re-election.

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

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