Former President Donald J. Trump’s proposals to deport millions of immigrants and impose new tariffs on imports from around the world would sharply reduce U.S. economic growth and jobs and send inflation soaring, according to a new analysis released Thursday by the nonpartisan Peterson Institute for International Economics.
The analysis also assumed that Trump would seek to undermine the Federal Reserve’s independence. Though he has not proposed doing so, Trump has suggested the president should have a say in central bank policy and has tried publicly to pressure the Fed to cut interest rates in the past.
The assessment of Trump’s policies came days after the Republican presidential candidate laid out a plan to create a manufacturing “renaissance” in the United States by cutting corporate taxes and regulations and raising tariffs by up to 200 percent. Economists have been skeptical that many of Trump’s proposals are feasible, and some may be difficult to enact. But the new report argues that, taken together, these policies would seriously damage the U.S. economy.
“Despite Trump’s promises to ‘make foreigners pay,’ our analysis shows that his policies would ultimately cost Americans the most,” Warwick J. McKibbin, Megan Hogan and Marcus Noland wrote in the report.
The study by the Peterson Institute, which tends to favor free trade, looked at the impact of three key Trump policies: deporting 8.3 million illegal immigrants, imposing a 10% tariff on all imports and a 60% tariff on Chinese imports, and weakening the independence of the Federal Reserve by giving the president influence over interest rate policy.
The survey suggested Trump wants to weaken the Fed’s independence, citing a Wall Street Journal article that said his allies were developing plans to blunt the Fed’s ability to freely set interest rates. It also noted that Trump has said he believes the president should have a “say” over interest rate policy.
Trump has not supported any plans to limit the Fed’s independence and has walked back comments about intervening in interest rates, saying it did not mean he would “take control.”
To show how the policy could backfire, economists outlined worst-case scenarios for the policy’s compound effects: They painted a dire scenario in which businesses would be forced to raise wages and prices to compensate for the loss of immigrant workers, while consumers would face higher prices as a result of import tariffs and retaliatory measures from other countries.
They also assumed that the Federal Reserve would be limited in its ability to raise interest rates in order to curb inflation, which they predicted would make investing in the U.S. economy riskier and encourage investors to park their money in other countries.
If all of Trump’s economic plans are realized, consumer prices are projected to be up to 28% higher than currently projected by 2028, with inflation peaking at 9.3%. Gross domestic product could fall by 9.7%, with output declining and consumer demand weakening. Employment, as measured by hours worked, could fall by 9% due to a shock to labor supply.
Trump’s policies could hurt the sectors he is working to revive: Economists have concluded that his plan would hit American manufacturing and agriculture especially hard, especially if America’s trading partners respond with higher tariffs.
Trump suggested this week that the new industrial strategy would attract workers and businesses from other countries, but it could actually help America’s economic competitors.
“Trump is trying to redress the balance through policies such as mass deportations, trade protections, and influence over the Fed,” the economists said. “Such interventions will reduce U.S. GDP and boost inflation while potentially benefiting the rest of the economy.”
Both President Trump and Democratic presidential candidate Vice President Kamala Harris have unveiled a series of economic plans in recent weeks in an attempt to garner support from voters ahead of Election Day.
Speaking in Georgia on Tuesday, Trump said this “new American industrialism” would create jobs, raise wages and “make America the manufacturing powerhouse it has been for years.”
Harris this week laid out her vision for helping Americans grow their wealth while keeping costs down. Economists have also cast doubt on her plan to curb inflation by cracking down on corporate price gouging, and some have raised concerns about the impact of her plan to give first-time homebuyers up to $25,000 for a down payment.
The Peterson Institute report did not delve into the fiscal impact of Trump’s proposals and assumed they would extend the 2017 tax cuts he enacted.
Trump wants to extend those tax cuts, but also wants to cut the corporate tax rate from 21% to 15% on companies that manufacture products in the US, and he wants to eliminate taxes on overtime, tips and Social Security payments.
Extending the 2017 tax cuts could add $5 trillion to the deficit over 10 years. The nonpartisan Committee for a Responsible Federal Budget estimates that repealing taxes on overtime pay could cost $6 trillion over 10 years. Proposed corporate tax cuts could cost $200 billion, and eliminating taxes on tip income could cost up to $250 billion.
Trump says his policies will not increase the national debt and will be paid for by the surge in economic growth they will spur.
But the Peterson Institute report concluded that deportation policies alone would not generate economic growth during Trump’s second term.
The Trump campaign did not immediately respond to a request for comment.
Most economists agree that a Trump victory could lead to higher inflation and slower growth, but they disagree on how much, with Peterson’s estimate being on the higher side. Moody’s economists, for example, estimate that Trump’s policies would boost inflation significantly, but not by as much as Peterson estimates.
Gina Smialek contributed reporting.
