WASHINGTON (AP) 鈥� Fed up with high prices and unimpressed with an economy that by just about any measure is a , Americans demanded change when they voted for president.
They could get it.
President-elect Donald Trump has vowed to topple many of the Biden administration's economic policies. Trump to impose huge tariffs on foreign goods, slash taxes on individuals and businesses and deport millions of undocumented immigrants working in the United States.
With their votes, tens of millions of Americans expressed their confidence that Trump can restore the low prices and economic stability they recall from his first term 鈥� at least until the COVID-19 recession of 2020 paralyzed the economy and then a powerful recovery sent inflation soaring. Inflation has since plummeted and is nearly back to normal. Yet Americans are .
鈥淗is track record proved to be, on balance, positive, and people look back now and think: 鈥極h, OK. Let鈥檚 try that again,鈥� 鈥� said Douglas Holtz-Eakin, a former White House economic adviser, director of the Congressional Budget Office and now president of the conservative American Action Forum think tank.
Since Election Day, the Dow Jones Industrial Average more than 1,700 points, largely on expectations that tax cuts and a broad loosening of regulations will accelerate economic growth and swell corporate profits.
Maybe they will. Yet many economists warn that Trump鈥檚 plans are likely to he鈥檚 vowed to eradicate, drive up the federal debt and eventually slow growth.
Trump policies could boost inflation
The Peterson Institute for International Economics, a leading think tank, that Trump鈥檚 policies would slash the U.S. gross domestic product 鈥� the total output of goods and services 鈥� by between $1.5 trillion and $6.4 trillion through 2028. Peterson also estimated that Trump鈥檚 proposals would drive prices sharply higher within two years: Inflation, which would otherwise come in at 1.9% in 2026, would instead jump to between 6% and 9.3% if Trump鈥檚 policies were enacted in full.
Last month, 23 Nobel-winning economists warning that a Trump administration 鈥渨ill lead to higher prices, larger deficits, and greater inequality."
鈥淎mong the most important determinants of economic success,鈥� they wrote, "are the rule of law and economic and political certainty, and Trump threatens all of these.鈥欌��
Trump is inheriting an economy that, despite frustratingly high prices, looks fundamentally strong. Growth came in at a healthy from July through September. 鈥� quite low by historic standards.
Among wealthy countries, only Spain will experience faster growth this year, according to the International Monetary Fund's forecast. The United States is the economic 鈥渆nvy 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 in September and again this week.
Americans are deeply unhappy with prices
Consumers, though, still bear the scars of the inflationary surge. are still 19% higher than they were before inflation began to accelerate in 2021. and rent hikes are still causing hardships, especially for lower-income households. Though for more than two years, they're still below where they were before President Joe Biden took office.
Voters took their frustration to the polls. According to said their family was 鈥渇alling behind鈥欌�� financially, up from 2 in 10 in 2020. About 9 in 10 voters were at least somewhat worried about the cost of groceries, 8 in 10 about the cost of healthcare, housing or gasoline.
鈥淚 don鈥檛 think it鈥檚 either deep or complicated,鈥欌�� Holtz-Eakin said. 鈥淭he real problem is the Biden-Harris team made people worse off, and they were very angry about it, and we saw the result.鈥欌��
The irony is that mainstream economists fear Trump鈥檚 remedies will make price levels worse, not better.
Tariffs are a tax on consumers
The centerpiece of Trump鈥檚 economic agenda is . It's an approach that he asserts will shrink America鈥檚 trade deficits and force other countries to grant concessions to the United States. In his first term, he increased tariffs on Chinese goods, and he鈥檚 now promised much more of the same: Trump wants to raise tariffs on Chinese goods to 60% and impose a 鈥渦niversal鈥欌�� tax of 10% or 20% on all other imports.
Trump insists that other countries pay tariffs. In fact, 鈥� and then typically pass along their higher costs to their customers via higher prices. Which is why . Worse, other countries usually retaliate with tariffs on American goods, thereby hurting U.S. exporters.
Kimberly Clausing and Mary Lovely of the Peterson Institute have calculated that Trump鈥檚 proposed 60% tax on Chinese imports and his high-end 20% tariff on everything else would impose an after-tax loss on a typical American household of $2,600 annually.
The economic damage would likely spread globally. Researchers at Capital Economics have calculated that a 10% U.S. tariff would hurt Mexico hardest. Germany and China would also suffer. All of that depends, of course, on whether he actually does what he said during the campaign.
Deportations would rattle the US job market
Trump has threatened to , potentially undermining one of the factors that allowed the United States to tame inflation without falling into recession.
The Congressional Budget Office reported that net immigration 鈥� arrivals minus departures 鈥� reached 3.3 million in 2023. Employers needed the new arrivals. After the economy rebounded from the pandemic recession, companies struggled to hire enough workers, especially because so many native-born baby boomers were retiring.
Immigrants filled the gap. Over the past four years, 73% of those who entered the labor force were foreign born.
Economists Wendy Edelberg and Tara Watson of the Brookings Institution鈥檚 Hamilton Project found that by raising the supply of workers, the influx of immigrants allowed the United States to generate jobs without overheating and accelerating inflation.
The Peterson Institute calculates that the deportation of all 8.3 million immigrants believed to be working illegally in the United States would slash U.S. GDP by $5.1 trillion and raise inflation by 9.1 percentage points by 2028
Big tax cuts could swell the federal deficit
Trump has proposed extending 2017 tax cuts for individuals that were set to expire after 2025 and restoring tax breaks for businesses that were being reduced. He's also called for ending taxes on Social Security benefits, overtime pay and tips as well as further reducing the corporate income tax rate for U.S. manufacturers.
The University of Pennsylvania鈥檚 Penn Wharton Budget Model estimates that Trump鈥檚 tax policies would i 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 from 2025 through 2034.
The federal budget is already out of balance. An aging population has required increased spending on Social Security and Medicare. And past tax cuts have shrunk government revenue.
Holtz-Eakin said he worries that Trump has little appetite for taking the steps 鈥� cuts to Social Security and Medicare, tax increases or some combination 鈥� needed to bring the federal budget meaningfully closer to balance.
鈥淚t鈥檚 not going to happen," Holtz-Eakin said.
Paul Wiseman, The Associated Press
