Yahoo Finance 3 Reasons Money Experts Say Inflation Could Be Worse Under Trump Than Biden
In a highly charged — and quite unprecedented — presidential election, inflation remains one of the top issues for voters. Indeed, a recent YouGov survey found that nearly two-thirds (64%) of American adults consider inflation a “very serious problem,” topping the list of current concerns.
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To put this in context, inflation — which remains sticky — has slowly been ticking down, standing at 3% in June, down from 3.3% in May, according to the latest Consumer Price Index (CPI) data, released on July 11. And while this is a major improvement from the record 9.1% it stood at two years ago, in June 2022, it is still a far cry from the Federal Reserve’s 2% target, as well as from where it stood in May 2020: 0.1%.
And when it comes to which presidential candidate would handle the issue better, 12% “strongly approve” of President Joe Biden’s handling of inflation, while 31% strongly approve of former President and Republican nominee Donald Trump’s handling of inflation, the survey showed.
Yet, a Wall Street Journal economists survey published on July 11 found that “56% said inflation would be higher under another Trump term than a Biden term, versus 16% who said the opposite.”
What’s more, on June 25, Axios reported that 16 Nobel prize-winning economists said in a joint letter that a Trump win would “reignite inflation.”
“Many Americans are concerned about inflation, which has come down remarkably fast,” they wrote in the letter, first reported by Axios. “There is rightly a worry that Donald Trump will reignite this inflation, with his fiscally irresponsible budgets.
“Nonpartisan researchers, including at Evercore, Allianz, Oxford Economics and the Peterson Institute, predict that if Donald Trump successfully enacts his agenda, it will increase inflation.”
In terms of which of Trump’s policies and campaign proposals could inflame inflation, economists’ opinions included his views on tariffs, on illegal immigration and his tax plans.
Aaron D. Sherman, CFP, president, Odyssey Group Wealth Advisors, said that in the current campaign, both presidential candidates have put forth proposals one could argue may be inflationary.
“Of Trump’s proposals, higher tariffs would likely raise prices for consumers while constraining supply; immigration curbs reduce the labor force, which can push wages (and thus prices) higher; and extended tax cuts would give consumers more money and theoretically boost demand for goods and services — all a perfect recipe for inflation,” said Sherman.
Here’s a more detailed look at what a Trump presidency could mean for inflation.
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Proposal To Raise Tariffs
One of Trump’s plans — if he were to be re-elected — is to impose a 10% tariff on all U.S. imports, “despite broad criticism over how that could hurt consumers,” CNBC reported.
In fact, The American Action Forum estimated that this could result in “average estimated additional costs per U.S. household of between $1,700 and $2,350 annually.”
Professor Ernie Goss, PhD, Creighton University’s Heider College of Business, and director of The Goss Institute for Economic Research, said that Trump’s proposal is counter to economists’ policy prescriptions, and that this action would result in trade retaliations from U.S. trading partners and much lower tax collections than expected.
According to Goss, the proposal, while popular with voters, would slow economic activity and add to U.S. inflationary pressures.
“The result will be reductions in U.S. sales of agriculture and manufacturing abroad, and a consequent fall in growth and federal tax collections,” said Goss.
In the end, Goss said, this would raise the price of foreign goods sold in the U.S.; result in retaliation from U.S. trading partners; slow U.S. economic growth by reducing U.S. agriculture and manufacturing activity; and heighten U.S. inflationary pressures with a resultant hawkish Federal Reserve raising interest rates.
Other experts agreed with these predictions, noting that an aggressive tariff program such as Trump has pledged would increase consumer prices.
“Depending upon how broadly they were applied — to how many different imported goods and services — and how high they were (Trump has said 60%), they might have effects indistinguishable from inflation,” said Peter C. Earle, senior economist, American Institute for Economic Research.
“But inflation is a product of monetary policy, whereas tariffs are a matter of trade policy. To U.S. consumers, the price increases would feel largely the same,” Earle said.
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Tax Plans
As part of his GOP platform, Trump said he would “make permanent the provisions of the Trump Tax Cuts and Jobs Act,” which included increasing the standard deduction, lowering corporate and estate tax rates and increasing the child tax credit. The law is set to expire in 2025, as GOBankingRates previously reported.
In turn, The Wall Street Journal’s survey showed that 51% of economists expect bigger federal budget deficits under a Trump presidency, which could put upward pressure on prices.
“The continued growth of deficits from too little revenue will keep interest rates high, making it more expensive for Americans to buy a home and start a business,” said Brendan Duke, senior director for economic policy, Center for American Progress, and former White House National Economic Council senior policy advisor.
Immigration Policy
In terms of immigration policy, the campaign pledged to stop illegal immigration, saying that “Republicans will secure the border, deport illegal aliens and reverse the Democrats’ open borders policies that have driven up the cost of housing, education and healthcare for American families,” according to the platform.
In a Truth Social post, Trump said that on Day One, he will “rapidly begin the largest domestic deportation operation in history.”
As MarketWatch reported, “investors should also be aware that mass deportation would put an enormous strain on the federal budget: The vast majority of unauthorized immigrants work and pay taxes, but receive very little in federal benefits.”
In fact, an analysis for MarketWatch from analysts at the Penn Wharton Budget Model estimated that “the removal of one million immigrants would cost the federal government between $40 billion and $50 billion over 10 years, and up to $100 billion if those immigrants were higher-paid workers.”
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories.You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: 3 Reasons Money Experts Say Inflation Could Be Worse Under Trump Than Biden
