Widening Economic Horizon: Trump’s Promises and Perils
By PAUL WISEMAN, Associated Press
November 9, 2024 | 7:29 AM
In the midst of soaring prices that leave many Americans reeling, the 2024 presidential election was a clarion call for change. Voters, dissatisfied with an economy that, despite its underlying robustness, fails to alleviate their financial strains, opted for a dramatic shift in leadership. Enter President-elect Donald Trump, who stands at the precipice of altering the economic landscape, with ambitions that may very well defy the norms.
Trump, whose campaign was steeped in grand promises, pledged to dismantle numerous economic policies put forth by the Biden administration. His game plan revolves around imposing staggering tariffs on foreign goods, slashing taxes for individuals and businesses, and executing mass deportations of undocumented immigrants — an approach laden with implications.
A substantial segment of the electorate pinned their hopes on Trump’s ability to return the nation to the halcyon days of low prices and stability reminiscent of his first term. This sentiment echoes in the shadow of the COVID-19 recession that once gripped the economy, giving rise to a robust recovery that paradoxically ignited inflation. While inflation rates are now trending downward, with optimism for a return to normalcy, consumers still grapple with painfully high prices, breeding discontent.
Douglas Holtz-Eakin, a former White House economic adviser, articulates this nostalgia: “His track record proved to be, on balance, positive, and people look back now and think: ‘Oh, OK. Let’s try that again.’”
The economic indicators following the election reveal a lively stock market, with the Dow Jones Industrial Average surging over 1,700 points. Investors are buoyed by the anticipation of tax cuts and deregulations leading to a swift economic upswing. Yet, lurking beneath this optimism are warnings from numerous economists who caution that Trump’s ambitious proposals could paradoxically aggravate inflation — the very beast he promises to slay — while ballooning the federal deficit and stifling long-term growth.
An Economic Study in Contrasts: The Inflationary Threats
The Peterson Institute for International Economics, a distinguished think tank, lays out a sobering prognosis: Trump’s fiscal maneuvers might severely contract the U.S. gross domestic product by an unsettling $1.5 trillion to $6.4 trillion by 2028. Furthermore, the anticipated inflation could leap dramatically, climbing to between 6% and 9.3%, far exceeding a baseline of 1.9%.
Significantly, a collective of 23 Nobel laureates warned in an open letter that a Trump administration risks “higher prices, larger deficits, and greater inequality.” They contend that fundamental elements of economic prosperity—such as the rule of law and political certainty—are under threat.
Despite prevailing frustrations with prices, the American economy, as it currently stands, exhibits remarkable resilience. Growth recorded a notable 2.8% annual rate between July and September, with unemployment resting at a mere 4.1%. The International Monetary Fund even forecasts the U.S. to be among the fastest-growing economies in its class this year.
The Federal Reserve, displaying confidence in an easing inflation trajectory, has taken the preemptive step of cutting its benchmark rates multiple times, stirring further hope for economic stabilization.
A Festering Discontent with Prices
Yet, beneath this veneer of growth lies a disenchanted consumer base. Inflationary scars remain fresh, with prices soaring approximately 19% since 2021. Households, particularly those in lower-income brackets, are seeing ongoing struggles with steep grocery bills and skyrocketing rents. Voter sentiment reflects this turmoil — data from AP VoteCast revealed that three in ten families feel they are “falling behind” financially, a stark increase from two in ten just four years ago.
Holtz-Eakin cuts to the heart of the matter: “The real problem is the Biden-Harris team made people worse off, and they were very angry about it, and we saw the result.”
Ironically, mainstream economists harbor fears that Trump’s solutions might exacerbate the very economic ailments he’s committed to curing.
Tariffs: A Double-Edged Sword
At the epicenter of Trump’s economic strategy lies the imposition of tariffs on imports—asserted as a way to rectify America’s trade discrepancies. With lofty ambitions to raise tariffs on Chinese goods to 60%, along with implementing a universal tax on all other imports, Trump’s approach has raised red flags.
The truth, according to experts, is that such tariffs effectively become a hidden tax on consumers. American businesses ultimately bear the brunt of these tariffs, and typically, the costs get shifted onto consumers in the form of increased prices. Importantly, retaliatory tariffs from foreign nations hamper U.S. exports, further complicating the economic dance.
Calculations from the Peterson Institute underscore the reality: the proposed 60% tariff on Chinese imports could translate to a staggering annual hit of $2,600 for the average American household.
The global implications cannot be ignored, with potential fallout across economies, particularly Mexico, Germany, and China.
Deportations: A Volatile Employment Landscape
Trump’s audacious plan to deport millions of undocumented immigrants introduces yet another layer of uncertainty. The influx of immigrants has been vital in sustaining economic momentum post-pandemic, with foreign workers often stepping in when native populations do not.
The Congressional Budget Office’s figures reveal that 73% of recent labor force entrants were foreign-born, affording employers the manpower needed as the economy rebounded. Deporting 8.3 million undocumented workers could decimate U.S. GDP by $5.1 trillion while potentially sending inflation soaring by an alarming 9.1 percentage points by 2028, according to the Peterson Institute.
Big Tax Cuts: The Fiscal Tightrope
Turning to tax policy, Trump’s intentions to extend the 2017 tax cuts for individuals and expand corporate breaks pose considerable risks. The University of Pennsylvania’s Penn Wharton Budget Model predicts these cuts might swell federal deficits by approximately $5.8 trillion over the next decade.
With an aging population and increased government spending necessities already straining the budget, many experts doubt Trump’s willingness to pursue deficit-closing strategies, such as cutting Social Security or raising taxes.
Holtz-Eakin succinctly summarizes the challenge: “It’s not going to happen.”
As America stands on the precipice of economic transformation under Trump, the interplay between lofty promises and harsh realities will shape the nation’s financial future in profound and unpredictable ways.
