New study reveals what we can expect from Trump’s economic plan

Former President Donald Trump often touts his ability to improve the U.S. economy as a reason why voters should choose him in November. Do experts agree that his policies would be a boon for the nation?

Well, research released this week indicated the former president’s economic proposals “result in lower U.S. national income, lower employment, and higher inflation than otherwise.”

Specifically, the Peterson Institute for International Economics study looked at three proposals from Trump. These were: a plan for mass deportation of unauthorized immigrant workers, a plan to increase tariffs and a plan to increase presidential control over the Federal Reserve Bank.

Want to get caught up on what's happening in SoCal every weekday afternoon? Click to follow The L.A. Local wherever you get podcasts.

“Under my plan, incomes will skyrocket, inflation will vanish completely, jobs will come roaring back, and the middle class will prosper like never, ever before,” Trump said during the Republican convention in July. However, the nonpartisan research organization’s analysis of the three specific plan points found they would do the opposite.

Some scenarios covered by the paper indicated that the economy would improve, but some showed that damage would continue through 2040. PIIE’s research even found that Trump’s policies would harm the U.S. economy more than other economies across the globe.

“We examine each policy’s effects separately using an economic model, detailed in our paper, to generate a baseline forecast for different variables in 24 countries and regions if these Trump policies are not adopted,” PIIE explained. “Then, we use the model to project the effects of the policies, measured as deviations from each baseline.”

Regarding mass deportations, PIIE considered two scenarios. One included the deportation of 1.3 million people and the other included the deportation of 8.3 million people.

“Both cause lower US employment and real GDP through 2040 than otherwise,” said the paper. “They also push U.S. inflation higher through 2028.”

Earlier this year,  Audacy reported on an analysis from The Brookings Institution of U.S. Census Bureau data that revealed how immigration was boosting population growth in U.S. cities. Audacy has also reported on research indicating that immigration will help bolster U.S. fertility rates in the future.

According to the PIIE paper, Trump’s proposed deportations would shrink the economy by reducing the number of potential workers and their demand for goods and services.

Trump has also proposed 10% additional tariffs on U.S. imports from all major sources as well as 60% additional tariffs on imports from China. PIIE said these would reduce U.S. real GDP and employment by 2028.

“But the former proposal hurts the US economy more than the latter,” it added. “The damage is magnified if other countries retaliate with higher tariffs on their imports from the United States.”

As for The Fed – which works to manage the U.S. economy through methods such as raising and lowering interest rates – PIIE noted it is “not an international economic policy per se,” but that Trump’s proposed changes would have “significant cross-border macroeconomic spillovers.” Trump has argued that the president should have more control over the central bank, an independent entity established by Congress.

“The concern is that the president would press the U.S. central bank to set interest rates lower than otherwise to spur stronger economic growth despite the likelihood of driving inflation higher,” said the PIIE paper.

In the paper, combinations of the different Trump proposals are also addressed. Using combinations of scenarios to create a range of outcomes, researchers forecasted U.S. real GDP will be between 2.8% and 9.7% lower than baseline by the end of Trump’s four-year term in 2028. While the GDP is expected to recover, the report still estimated that it would remain lower through 2040.

“Employment, measured as hours worked, increases at first but then falls and remains lower through 2040 than otherwise,” said PIIE. “Employment rises between 1.5% and 1.8% above baseline in 2025, but it is between 2.7% and 9% below baseline by 2028. It stays between 0.4% and 3.4% lower by 2040.”

At the same time, the U.S. inflation rate is expected to between 4.1% and 7.4% points higher than the baseline expected increase of 1.9% 2026. Prices would be between 20% and 28% higher and the inflation rate would settle at around 4% (compared to the Fed’s ideal rate of 2%) from 2034 through 2040.

However, the report was not entirely negative on Trump, who is running against Democrat candidate Vice President Kamala Harris. It said that the U.S. baseline assumes that tax cuts enacted during his first term in 2017 would be extended in 2025.

“The 2017 Tax Cuts and Jobs Act brought a major overhaul to U.S. tax code. The corporate tax rate was slashed to 21% from 35%, individual income tax rates were cut, and the standard deduction was increased,” explained The Brookings Institution in May. Many of the household tax reforms included will expire next year.

Brookings said Trump plans to make the tax rules permanent if he’s elected and that President Joe Biden (the Democrat candidate at the time) would probably preserve some of the tax cuts, namely those benefitting households making less than $400,000 a year. As Biden’s VP, Harris is expected to take a similar approach.

PIIE said that, if the 2017 tax cuts are not extended, their scheduled expiration in 2025 would impose a strong fiscal drag that would make the overall US results more negative. With the cuts extended, the baseline expectation from 2025 to 2040 includes annual projected GDP growth of 1.9%, annual employment growth (measured as hours worked) of 1.5%; and an annual inflation rate of 1.9%.

“We have no partisan goal in publishing this research. Our concerns are about the policies, not the candidate,” said PIIE. “Our objective is to educate policymakers and the public about the effects these measures would have on the US and other economies.”

The Washington Post reported this week that Americans still seem to favor Trump as far as the economy is concerned, but noted that he was losing some of his edge over Harris on the issue – one of the top issues overall for voters this year. For example, Echelon poll results released this week showed that Harris had a slight edge over Trump.

Follow KNX News 97.1 FM
Twitter | Facebook | Instagram | TikTok