Trump Wants to Make America Inflationary Again

On Friday, with 24 days until the election, the internet bequeathed us the Donald Trump Economic Policy Generator. “Today, while on the Talk Tuah podcast, Donald Trump promised that, if elected, he will enact a 5000% tariff on inflatable flamingos from The Shire,” the parody site spits out. Another one: “Today, while on a livestream with Andrew Tate, Donald Trump promised that, if elected, he will make donations to his presidential campaign tax deductible for social media influencers.” You get the idea.

Trump has already been president once, so most people know the kinds of business-friendly, anti-immigrant policies he’s probably going to enact if he beats Kamala Harris and makes it back to the White House next year. But he’s getting more and more specific in his appeals to swing-state voters as he simultaneously courts bro-friendly influencers, which is why the Economic Policy Generator gag works. Trump has floated cutting taxes on tips to win over Nevada voters and, just this week while giving a speech in Detroit, making a portion of auto-loan payments tax deductible. In doing so, he has further defined his vision of a second term. It is a world where the U.S. is isolated from the global economy and pretending it’s the 1970s again. There would be new foreign tariffs, mass deportations, a plan to undermine the Federal Reserve, and, of course, tax breaks. Take it all into account and the economy would likely end up back in the same kind of inflationary morass the country has spent the past two years climbing out of.

Of all his policies, the two most likely to sow economic chaos are his plans to deport immigrants in huge numbers and a proposal — floated by one of his advisers — to nominate a “shadow” chairman of the Federal Reserve. These two ideas, at first blush, don’t seem like they have much to do with each other, since one appears to be more animated by Trump’s general antipathy toward immigrants and the other by his long-simmering disappointment in Jerome Powell, the current Fed chair. But together, the policies would undermine two of the bedrock assumptions on which the U.S. economy relies: that there will be cheap labor available to keep prices low and an independent central bank that can control inflation and unemployment without political interference.

Trump has threatened mass deportations of as many as 13 million people, possibly by invoking a war-powers law and using the military. Given that he may very well have the legal recourse to do this, the kinds of roundups that would be required for such a move would devastate the agriculture and food-service industries. About 10.5 million workers in the U.S. are undocumented, according to the Joint Economic Committee — and about three-fourths of those workers were considered essential during the COVID pandemic. In order for farms to operate or for restaurants to continue serving customers, those businesses would have to hire new workers at higher wages, then likely pass on those costs to consumers. This is exactly what happened during the pandemic, when there were fewer immigrants and nobody wanted to take low-paying jobs.

Also troubling is a proposal from Trump adviser Scott Bessent, who has floated the idea of paralyzing the Fed’s influence in the markets by nominating its chair’s successor a year early. The idea here is that the current chair, Powell, who has been very deliberate in lowering interest rates, would be made into a lame duck. “You could do the earliest Fed nomination and create a shadow Fed chair,” Bessent told Barron’s. This “shadow” chair would present his own, probably Trump-friendly economic policy, which would send two different messages to Wall Street. “No one is really going to care what Jerome Powell has to say anymore,” Bessent added. That’s far from clear; there’s no reason to think the current Fed chair would lose his ability to direct monetary policy. But such a move would likely hijack the extremely high-stakes debates over the economy and perhaps influence a few sitting members of the Fed’s interest-rate-setting committee, which would undermine one of the central tenets of the Fed: that it operates independently from political manipulation.

Central to Trump’s plans are taxes. The broad idea behind Trump’s economic policy is to eliminate taxes on Americans and replace that government revenue by imposing tariffs on foreign nations. His new proposals, some looser than others, include a total elimination of income taxes, a tax break on auto-loan interest, double taxation of U.S. citizens living abroad, and taxes on tips and Social Security payments. There’s no way everything on this wish list would come to pass — income taxes alone account for about half of the federal government’s revenue, and the suite of breaks and other incentives would divert more money out of the federal budget. To put this into perspective, the U.S. collects about $4.4 trillion in revenue.

But Trump has endorsed these ideas. And the irony is that if they were enacted, they would do much more to goose inflation than Trump’s economic bogeyman, President Biden, has. Biden clearly did exacerbate the inflationary problems that have haunted his term. Ever since he signed into law a $1.9 trillion economic stimulus package called the American Rescue Plan — a law that overwhelmingly helped lower- and middle-income people, particularly families with young children in poverty — he has been criticized for spending his way into crisis. The Heritage Foundation, the right-wing think tank, claims Biden’s bill “encouraged people to stay home just as the economy was taking off, forcing employers to raise wages to attract workers and driving up inflation.” In reality, prime-age employment actually accelerated in the months after the bill’s passage. And the root cause of the inflation is not so simple: It was a global phenomenon, made worse by wars, supply-chain problems, and a worldwide pandemic that did not end with the advent of vaccines. Still, high prices tend to be a consequence, at least in part, of more money sloshing around the system.

Let’s say Trump does cut some taxes. What will he replace them with? Money from foreign countries, the ones that sell their goods here, where consumption makes up the vast majority of our economy. Last month, Trump gave a kind of free-form associative answer to a question about this idea. “We’re going to be taking in trillions of dollars, and as much as child care is talked about as being expensive, it’s, relatively speaking, not very expensive compared to the kind of numbers we’ll be taking in,” he said. On Thursday, during a speech in Detroit, he made the deeply wrong case that 19th-century America was prosperous because it collected money from abroad. The idea here is that there is a vast, untapped pool of money that foreign countries like China have been withholding from the U.S. and that by closing off our markets, we would be able to make up the difference and reverse 50 years of globalization.

For Trump, whom voters see as more capable of handling the economy than Harris, Biden’s weakness on the issue has been a potent line of attack. But take stock of what Trump is actually proposing to do if he wins back the White House. All his tax cuts would reignite the same problems: an excess of money in the economy at a time of high chaos. The world remade under him may very well look a lot like the bad days of 2021 and 2022, when prices were spiraling out of control and an incumbent president began to look very vulnerable. Maybe Trump wouldn’t mind so much since this would be his final term in office anyway. Though the phrase final term does not seem to be in the man’s vocabulary.