A research uncovers that Trump's pledges could amplify inflation rates and result in job losses.
A new examination reveals that the potential presidential candidate from the Republican party's plans regarding tariffs, expulsions, and the Federal Reserve would not only fail to tackle inflation, but actually make it much worse.
According to a research paper published by the Peterson Institute for International Economics on Thursday, Trump's economic plans would result in slower growth, higher inflation, and less employment. The harm could persist until 2040 in certain scenarios.
The paper asserts that "strangely, despite his 'make the foreigners pay' rhetoric," the package of policies under consideration would cause more harm to the American economy than any other in the world.
The research represents the most comprehensive analysis to date on the combined impact of Trump's trade, immigration, and Fed proposals.
Even in a "low" scenario where only 1.3 million undocumented workers are expelled and other countries choose not to retaliate against Trump's tariffs, employment (measured in hours worked) would decrease by 2.7% in 2028 compared to a baseline forecast, according to the paper.
Inflation would reach 6% by 2026, and by 2028, consumer prices would be 20% higher.
US gross domestic product (GDP), the broadest measure of economic growth, would be 2.8% lower than expected by the end of Trump's four-year term.
The researchers also modeled a "high" scenario that includes retaliatory tariffs from other nations and 8.3 million undocumented workers being expelled. In this scenario, employment would be 9% lower than the baseline by 2028, and inflation would reach 9.3% by 2026. GDP would be 9.7% lower than expected.
The paper concludes that Trump's proposed changes would "cause a large inflationary impulse and a significant loss of employment (particularly in manufacturing and agriculture) in the American economy," and could confer benefits to other economies in certain cases.
The analysis assumes that the 2017 Trump tax cuts are extended, but it does not take into account his proposals to end taxes on overtime, tips, and Social Security benefits.
CNN has reached out to the Trump campaign for comment.
The top concern
In the past, the Trump campaign has dismissed warnings that his policy proposals would exacerbate inflation and harm the economy.
"So-called economists and experts doubted President Trump’s economic plans in his first term. They were proven wrong then and they’ll be proven wrong again," Karoline Leavitt, the Trump campaign national press secretary, told CNN in a statement earlier this month. "President Trump’s plan will result in millions of jobs and hundreds of billions of dollars returning home from China to America."
The findings are relevant given that a recent CNN poll finds that the economy is the No. 1 issue for voters. About 4 in 10 likely voters (41%) say the economy is the most important issue for them, far ahead of the next-closest issue of protecting democracy at 21%.
Despite warnings from mainstream economists about the damage some of Trump's economic policies would do, the former president still has an edge on the critical issue. Likely voters say they trust Trump over Vice President Kamala Harris to handle the economy (50% Trump to 39% Harris).
A Covid-like 'shock'
The paper found that all three of Trump's policies on immigration, trade, and the Fed would "cause a decline in US production and employment...as well as higher US inflation."
However, the most damaging element of these policies would be his immigration crackdown.
Trump has proposed deporting "perhaps 15 to 20 million undocumented people" in an effort to combat crime, lower inflation, and help workers.
"People pouring into the country are killing the jobs of Black and Hispanic people," Trump said on Tuesday during a speech in Georgia.
McKibbin, a nonresident senior fellow at the Peterson Institute, told CNN in a phone interview that mass deportations would cause a "Covid-like" shock to the supply of workers. He noted that an estimated 16% of workers in agriculture are undocumented.
"Can you imagine taking 16% out of the labor force in agriculture?" McKibbin said, adding that the cost of food would increase. "And unless you let them back in, you will have a permanent loss of supply."
'The greatest things ever invented'
On the trade front, Trump has championed tariffs as a way to create a "manufacturing renaissance" in America. He has proposed a 10% to 20% across-the-board tariff on all US imports as well as a 60% tariff on goods from China.
At an event in Michigan last week, Trump praised tariffs as "the greatest things ever invented." In Georgia this week, Trump said the word "tariff" is "one of the most beautiful words I’ve ever heard."
However, the Peterson Institute research finds that Trump's tariff and other plans would backfire – hurting manufacturing more than any other sector. That means the same factory workers Trump says he is trying to help would be hurt the most.
"If other countries retaliate, as many likely would, a recession in the year after the increase in tariffs would be a serious threat," Mark Zandi, chief economist at Moody's Analytics, told CNN in an email.
Trump later softened his stance a tad, speaking with Bloomberg that a president technically can discuss interest rates, but it doesn't mean they're pulling the strings.
The study conducted by The Peterson Institute pointed out the possibility of the president influencing the Fed to artificially maintain low rates, aiming to stimulate the economy.
The research revealed that encroaching on the Fed's independence would result in escalated inflation, substantial outflows of capital, a significant decrease in the value of the US dollar, and increased unemployment – all of which would deteriorate the living standards in the U.S.
As McKibbin mentioned, nations with autonomous central banks tend to experience lower inflation. He highlighted Argentina as an example, with their central bank experiencing political meddling, which currently leads to the highest inflation worldwide.
Fed Chairman Jerome Powell, who Trump appointed in 2017, voiced caution against meddling with the Fed's independence.
"Throughout history, people have discovered that shielding the central bank from direct political control prevents constructing monetary policy that favors those in power, rather than the general public," Powell explained in response to a query from CNN. "Our responsibility is to serve all Americans. We're not catering to any politician or political figure, no cause or issue whatsoever."
The business community might express concern if the proposed policies of the potential presidential candidate, such as tariffs and expulsions, negatively impact the economy, as suggested by the research from the Peterson Institute for International Economics.
Given that the economy is the top concern for voters according to a recent CNN poll, any policies that could potentially exacerbate inflation and harm the economy might not be well-received by businesses.
