Economic concerns were a driving factor for voters in this election, leading to Donald Trump’s return to the White House and the Republican victory in Congress. Frustrated by high prices despite an otherwise stable economy, Americans demanded change when they voted for the president. They might get it.

President-elect Trump has promised to dismantle many of the Biden administration’s policies, promising substantial tariffs on imports, tax cuts for individuals and businesses, and a crackdown on undocumented immigrants working in the UNITED STATES. Millions of voters supported Trump, hoping he could bring back the economic stability and lower prices they remember from his first term, before the COVID-19 recession. Although inflation has fallen significantly recently, many remain dissatisfied with persistent price levels.

Trump’s economic agenda will likely have immediate effects on trade, tax policy and immigration, shaping the direction of the U.S. economy under his leadership.

“His record was, overall, positive, and people look back now and think, ‘Oh, OK.’ Let’s try one more time,” said Douglas Holtz-Eakin, a former White House economic adviser, director of the Congressional Budget Office and now president of the conservative think tank American Action Forum.

Since Election Day, the Dow Jones Industrial Average has climbed more than 1,700 points, largely on expectations that tax cuts and broad easing of regulations would accelerate economic growth and boost profits businesses.

Maybe they will. Yet many economists warn that Trump’s plans risk worsening the inflation he has pledged to eradicate, increasing the federal debt and ultimately slowing growth.

The Peterson Institute for International Economics, a leading think tank, estimated that Trump’s policies would reduce U.S. gross domestic product — the total output of goods and services — by between $1.5 trillion and $6.4 trillion by up to $1.5 trillion. ‘in 2028. Peterson also estimated that Trump’s proposals would lead to a sharp rise in prices within two years: inflation, which would otherwise amount to 1.9% in 2026, would instead climb between 6 % and 9.3% if Trump’s policy was fully implemented.

Last month, 23 Nobel Prize-winning economists signed a letter warning that a Trump administration “will lead to higher prices, larger deficits and greater inequality.”

“Among the most important determinants of economic success,” they write, “are the rule of law and economic and political certainty, and Trump threatens all of these.” »

Trump inherits an economy that, despite frustratingly high prices, appears fundamentally sound. Growth reached a healthy annual rate of 2.8% from July to September. The unemployment rate is 4.1%, which is quite low by historical standards.

Among rich countries, only Spain will grow faster this year, according to forecasts from the International Monetary Fund. The United States is the economic “envy of the world,” the Economist magazine recently declared.

The Federal Reserve is so confident that U.S. inflation is slowing toward its 2% target that it lowered its benchmark rate in September and again this week.

However, consumers still bear the scars of the inflationary surge. Prices on average are still 19% higher than they were before inflation began to accelerate in 2021. Grocery bills and rent hikes continue to cause hardship, particularly for low-income households. Although inflation-adjusted hourly wages have been rising for more than two years, they remain lower than they were before President Joe Biden took office.

Voters expressed their frustration at the polls. According to AP VoteCast, a comprehensive survey of more than 120,000 voters nationwide, 3 in 10 voters said their families were “falling behind” financially, up from 2 in 10 in 2020. About 9 in 10 voters were at least somewhat worried about the situation. the cost of groceries, 8 out of 10 regarding the cost of health care, housing or gasoline.

“I don’t think it’s deep or complicated,” Holtz-Eakin said. “The real problem is that the Biden-Harris team made people worse off, and they were very angry about it, and we saw the result.”

The irony is that mainstream economists fear that Trump’s remedies will make price levels worse, not better.

The centerpiece of Trump’s economic agenda is import taxes. It’s an approach he says will reduce U.S. trade deficits and force other countries to grant concessions to the United States. During his first term, he raised tariffs on Chinese goods, and now he’s promising the same thing: Trump wants to raise tariffs on Chinese goods to 60% and impose a “universal” tax of 10 or 20% off all other products. imports.

Trump insists other countries pay tariffs. In fact, American companies pay them – then typically pass on their higher costs to their customers via higher prices. This is why taxing imports is normally inflationary. Worse yet, other countries typically retaliate by imposing tariffs on U.S. products, thereby hurting U.S. exporters.

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

The economic damage would likely extend globally. Capital Economics researchers calculated that a 10% U.S. tariff would harm Mexico the most. Germany and China would also suffer. All of this depends, of course, on the extent to which he actually does what he said during the campaign.

Trump has threatened to deport millions of undocumented immigrants, potentially undermining one of the factors that has allowed the United States to control inflation without falling into recession.

The Congressional Budget Office reported that net immigration – arrivals minus departures – reached 3.3 million in 2023. Employers needed the new arrivals. After the economy rebounded from the pandemic recession, businesses struggled to hire enough workers, particularly because many native-born baby boomers were retiring.

Immigrants filled the void. Over the past four years, 73% of those entering the workforce were foreign-born.

Economists Wendy Edelberg and Tara Watson of the Brookings Institution’s Hamilton Project found that by increasing the supply of workers, the influx of immigrants allowed the United States to create jobs without overheating or accelerating inflation.

The Peterson Institute estimates that deporting the 8.3 million immigrants suspected of working illegally in the United States would reduce U.S. GDP by $5.1 trillion and increase inflation by 9.1 percentage points here 2028.

Trump proposed extending the 2017 tax cuts for individuals that were set to expire after 2025 and restoring tax breaks for businesses that were being cut. He also called for eliminating taxes on Social Security benefits, overtime and tips, as well as further reducing the corporate tax rate for U.S. manufacturers.

The University of Pennsylvania’s Penn Wharton Budget Model estimates that Trump’s tax policies would increase budget deficits by $5.8 trillion over 10 years. Even if the tax cuts generated enough growth to recoup some of the lost tax revenue, Penn Wharton calculated, deficits would still increase by more than $4.1 trillion between 2025 and 2034.

The federal budget is already unbalanced. The aging population has necessitated increased spending on Social Security and Medicare. And past tax cuts have reduced government revenue.

Holtz-Eakin said he worries that Trump has little appetite to take the steps — Social Security and Medicare cuts, tax increases or some combination — needed to bring the budget closer together. federal balance significantly.

“That’s not going to happen,” Holtz-Eakin said.

With the contribution of agencies.

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