Trump Plans Would Worsen Inflation     10/15 06:14

   Most mainstream economists say Trump's policy proposals wouldn't vanquish 
inflation. They'd make it worse. 

   WASHINGTON (AP) -- With characteristic bravado, Donald Trump has vowed that 
if voters return him to the White House, "inflation will vanish completely."

   It's a message tailored for Americans who are still exasperated by the jump 
in consumer prices that began 3 1/2 years ago.

   Yet most mainstream economists say Trump's policy proposals wouldn't 
vanquish inflation. They'd make it worse. They warn that his plans to impose 
huge tariffs on imported goods, deport millions of migrant workers and demand a 
voice in the Federal Reserve's interest rate policies would likely send prices 
surging.

   Sixteen Nobel Prize-winning economists signed a letter in June expressing 
fear that Trump's proposals would "reignite'' inflation, which has plummeted 
since peaking at 9.1% in 2022 and is nearly back to the Fed's 2% target.

   Last month, the Peterson Institute for International Economics predicted 
that Trump's policies would drive consumer prices sharply higher two years into 
his second term. Peterson's analysis concluded that inflation, which would 
otherwise register 1.9% in 2026, would instead jump to between 6% and 9.3% if 
Trump's economic proposals were adopted.

   Many economists aren't thrilled with Vice President Kamala Harris' economic 
agenda, either. They dismiss, for example, her proposal to combat price gouging 
as an ineffective tool against high grocery prices. But they don't regard her 
policies as particularly inflationary.

   Moody's Analytics has estimated that Harris' policies would leave the 
inflation outlook virtually unchanged, even if she enjoyed a Democratic 
majority in both chambers of Congress. An unfettered Trump, by contrast, would 
leave prices higher by 1.1 percentage points in 2025 and 0.8 percentage points 
in 2026.

   Consumers pay for tariffs

   Taxes on imports -- tariffs -- are Trump's go-to economic policy. He argues 
that tariffs protect American factory jobs from foreign competition and deliver 
a host of other benefits.

   While in office, Trump started a trade war with China, imposing high tariffs 
on most Chinese goods. He also raised import taxes on foreign steel and 
aluminum, washing machines and solar panels. He has grander plans for a second 
term: Trump wants to impose a 60% tariff on all Chinese goods and a 
"universal'' tariff of 10% or 20% on everything else that enters the United 
States.

   Trump insists that the cost of taxing imported goods is absorbed by the 
foreign countries. The truth is that U.S. importers pay the tariff -- and then 
typically pass along that cost to consumers in the form of higher prices. 
Americans themselves end up bearing the cost.

   Kimberly Clausing and Mary Lovely of the Peterson Institute have calculated 
that Trump's proposed 60% tax on Chinese imports and his high-end 20% tariff on 
everything else would, in combination, impose an after-tax loss on a typical 
American household of $2,600 a year.

   The Trump campaign notes that U.S. inflation remained low even as Trump 
aggressively imposed tariffs as president.

   But Mark Zandi, chief economist at Moody's Analytics, said that the 
magnitude of Trump's current tariff proposals has vastly changed the 
calculations. "The Trump tariffs in 2018-19 didn't have as large an impact as 
the tariffs were only just over $300 billion in mostly Chinese imports,'' he 
said. "The former president is now talking about tariffs on over $3 trillion in 
imported goods.''

   And the inflationary backdrop was different during Trump's first term when 
the Fed worried that inflation was too low, not too high.

   Trump would reverse an immigration surge that helped ease inflation

   Trump, who has invoked incendiary rhetoric about immigrants, has promised 
the "largest deportation operation'' in U.S. history.

   Many economists say the increased immigration over the past couple years 
helped tame inflation while avoiding a recession.

   The surge in foreign-born workers has made it easier for fill vacancies. 
That helps cool inflation by easing the pressure on employers to sharply raise 
pay and to pass on their higher labor costs by increasing prices.

   Net immigration -- arrivals minus departures -- reached 3.3 million in 2023, 
more than triple what the government had expected. Employers needed the new 
arrivals. As the economy roared back from pandemic lockdowns, companies 
struggled to hire enough workers to keep up with customer orders.

   Immigrants filled the gap. Over the past four years, the number of people in 
the United States who either have a job or are looking for one rose by nearly 
8.5 million. Roughly 72% of them were foreign born.

   Wendy Edelberg and Tara Watson of the Brookings Institution found that by 
raising the supply of workers. the influx of immigrants allowed the United 
States to generate jobs without overheating the economy.

   In the past, economists estimated that America's employers could add no more 
than 100,000 jobs a month without igniting inflation. But when Edelberg and 
Watson factored in the immigration surge, they found that monthly job growth 
could reach 160,000 to 200,000 without exerting upward pressure on prices.

   Trump's mass deportations, if carried out, would change everything. The 
Peterson Institute calculates that the U.S. inflation rate would be 3.5 
percentage points higher in 2026 if Trump managed to deport all 8.3 million 
undocumented immigrant workers thought to be working in the United States.

   A politicized Fed would make inflation-fighting harder

   Trump alarmed many economists in August by saying he would seek to have "a 
say" in the Fed's interest rate decisions.

   The Fed is the government's chief inflation-fighter. It attacks high 
inflation by raising interest rates to restrain borrowing and spending, slow 
the economy and cool the rate of price increases.

   Economic research has found that the Fed and other central banks can 
properly manage inflation only if they're kept independent of political 
pressure. That's because raising rates can cause economic pain -- perhaps a 
recession -- so it's anathema to politicians seeking reelection.

   As president, Trump frequently hounded Jerome Powell, the Fed chair he had 
chosen, to lower rates to try to juice the economy. For many economists, 
Trump's public pressure on Powell exceeded even the attempts that Presidents 
Lyndon Johnson and Richard Nixon made to push previous Fed chairs to keep rates 
low -- moves that were widely blamed for helping spur the chronic inflation of 
the late 1960s and '70s.

   The Peterson Institute report found that upending the Fed's independence 
would increase inflation by 2 percentage points a year.