In the lead-up to the upcoming Republican National Convention, the Republican Party under the strong influence of former President Donald Trump has adopted a new policy platform. While the platform largely avoids specific commitments and contains softer language on issues like abortion and same-sex marriage compared to previous versions, there are no signs of Trump backing down from his protectionist "America First" economic agenda.
Despite warnings from economists that his plans could increase inflation, harm consumers, and potentially push the economy into a recession, Trump seems determined to subject the economy, which is still recovering from rapid price rises to new inflationary shocks. On the campaign trail, Trump has proposed a 10% tariff on all imported goods and a 60% levy on imports from China. He has also promised to deport millions of undocumented workers, which could exacerbate existing labor shortages in sectors like construction and agriculture. Additionally, Trump has pledged to extend the 2017 Republican tax cuts, which disproportionately benefited the wealthy and were set to expire at the end of next year. Extending these cuts would further increase the already high budget deficit.
While Trump's economic platform has not received the same level of media scrutiny as the Biden campaign, it could have significant consequences. Analyses by Moody's Analytics suggest that if Trump can enact his full economic program, including universal tariffs and mass deportations, it could lead to a recession starting in mid-2025, with inflation rising to 3.6% and the unemployment rate reaching over 5% by mid-2026.
Even in a scenario where Trump wins the presidency but Congress remains divided, Moody's analysis predicts that the economy would stagnate, with GDP growth slowing to around 1% and the unemployment rate rising to 4.7%. This is due to the continued impact of tariffs and the inability to fully implement the tax cut extensions.
Defenders of Trump argue that his policies did not significantly harm the economy during his first term, and they dispute claims that broader tariffs would lead to higher inflation. However, trade economists counter that tariffs are effectively a tax that businesses pass on to consumers, resulting in higher prices and reduced household spending power.
Overall, the analysis suggests that a Trump victory and the implementation of his economic agenda could have serious negative consequences for the US economy, including higher inflation, stagnant growth, and rising unemployment. The potential for retaliation from trading partners and tensions with the Federal Reserve adds further uncertainty and risk.