Introduction to Trump’s Economic Policies
President Donald Trump’s aggressive economic policies will likely significantly slow U.S. growth and push up inflation but stop short of causing a recession or “stagflation” – the dire scenarios that forecasters envisioned before he took office, according to a report. The report highlights the impact of Trump’s policies on the economy, including tax cuts, tariffs, and immigration crackdowns.
The Impact of Trump’s Policies on the Economy
The totality of the policies does not push the economy to the brink of recession but it significantly diminishes growth during Trump’s four-year term, said economist Justin Begley of Moody’s Analytics. He added, “It’s not yet stagflation but it’s edging that way.” Stagflation is an economy characterized by high inflation, slow or stagnant growth, and high unemployment – an unusual and toxic cocktail.
Tariffs and Their Effects on the Economy
High double-digit tariffs are in place for steel and aluminum, foreign cars, and Chinese imports. And the White House has reached deals with trading partners such as Japan, South Korea, Vietnam, and the UK that set tariffs at 10% to 20%. These tariffs are expected to drive up prices and reduce consumer spending, which makes up 70% of economic activity.
The Role of the Federal Reserve
The Fed, however, faces a dilemma because lowering rates to bolster a softening labor market could further drive up inflation. Consumer price increases generally have eased substantially after a pandemic-related spike but recently edged higher, in part because of Trump’s sweeping import levies. The Fed must balance the need to stimulate growth with the need to control inflation.
The Effects of Deportations on the Economy
Another big hit comes from the deportations. Like the tariffs, the immigration crackdown is projected to both curtail growth and boost inflation. A reduced supply of workers in industries such as construction, agriculture, and hospitality is expected to drive up wages and prices. And a smaller population of immigrants means less consumer spending.
Less Retaliation from Tariffs and Fewer Deportations
Although Trump’s tariffs are higher than anticipated, Moody’s expected more significant retaliation from foreign countries that would batter U.S. manufacturers’ exports. At least so far, those nations have taken a more restrained approach. Additionally, Moody’s figured the Trump administration would seek to deport about 1 million immigrants who lack permanent legal status each year. But Begley said that has proven logistically challenging.
Tax Cuts and Their Effects on the Economy
Although Trump vowed during his campaign to eliminate taxes on tips and overtime, Moody’s didn’t necessarily expect him to follow through. The budget bill, however, scraps taxes on tips up to $25,000 a year and over time up to $12,500. This is expected to give middle-class Americans more spending money, which could help stimulate growth.
Conclusion
In conclusion, Trump’s economic policies will have a significant impact on the economy, including slowing growth and increasing inflation. The tariffs, deportations, and tax cuts will all play a role in shaping the economy over the next few years. While the effects of these policies are not expected to be as dire as initially thought, they will still have a significant impact on the economy and on the lives of Americans. The Fed will need to carefully balance the need to stimulate growth with the need to control inflation, and the administration will need to consider the long-term effects of its policies on the economy.
