Trump tariffs, deportations could 'reignite' inflation, economic studies say

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

But 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 per cent in 2022 and is nearly back to the Fed's two per cent 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 per cent in 2026, would instead jump to between sixper cent and 9.3 per cent if Trump's economic proposals were adopted.

Many economists aren't thrilled with Vice-President Kamala Harris's 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's 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.

Despite the warnings, many voters surveyed continue to think that Trump is the stronger candidate on the economy, which ranks as the most important issue for American voters, according to several polls. In the most recent Reuters/Ipsos poll, conducted this month, 46 per cent of voters said Trump was the better candidate for the economy, eightpercentage points higher than Harris, while an Associated Press-NORC Center for Public Affairs Research survey last month found Trump had a smaller edge among respondents on a similar question.

Many Americans remain pessimistic about the economy, in no small part to increases in consumer prices exacerbated by the pandemic, supply chain snafus and Russia's invasion of Ukraine. But economic data indicates that, "compared with every other G7 economy, the United States has not just the lowest headline inflation but also the lowest core inflation inflation that excludes volatile energy and food prices," the liberal think-tank Centerfor American Progress (CAP) reported in 2023.

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Talk of expanding 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.

"To me the most beautiful word in the dictionary is 'tariffs.' It needs a public relations firm," he said Tuesday in an interview with the Economic Club of Chicago and Bloomberg News.

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. In such cases, Americans themselves end up bearing the cost.

"There's no question that tariffs are inflationary," said Kent Smetters of the University of Pennsylvania's Penn Wharton Budget Model, which studies the costs of government policies. "Exactly how much that's where economists can debate it."

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

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

At the Chicago interview, Trump was insistent his tariff plans would be a boon for the economy.

"The higher the tariff, the more likely it is that the company will come into the United States and build a factory in the United States, so it doesn't have to pay the tariff," Trump said in Chicago, to some applause.

He disagreed with moderator and Bloomberg editor-in-chief John Micklethwait, who said such a process "would take many years."

Mark Zandi, chief economist at Moody's Analytics, said 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."

Agricultural sector would be hurt by deportations

Trump has promised the "largest deportation operation" in U.S. history, as he has campaigned with incendiary remarks that migrants who don't have legal status are "poisoning the blood of our country."

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

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Net immigration arrivals minus departures reached 3.3 million in 2023, more than triple what the government had expected. As the economy roared back from pandemic lockdowns, companies struggled to hire enough workers to keep up with customer orders, and the U.S. Chamber of Commerce has said the country is "facing a worker shortage crisis," due to early retirements and an aging workforce, among other factors.

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 per cent of them were foreign born.

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.

The plans could particularly harm food production and the agricultural sector, where thousands of seasonal workers from other countries toil. CAP has estimated that nearly 1.7 million undocumented workers are part of the U.S. food supply chain.