Free Form Friday: Trump’s Agenda Would Worsen Inflation
Free Form Friday is my weekly non-Bowie post. Come back tomorrow for more David Bowie…
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Inflation seems like it should be a layup of an issue for Donald Trump. When he takes the rare break from talking about Hannibal Lecter and whether Kamala Harris is black, he bashes Harris and President Joe Biden over the issue. (Forget that inflation is currently the lowest it’s been in years). Ironically, however, Trump’s own proposals would likely cause inflation to surge much higher. His economic platform, built around massive tax cuts, pressure on the Federal Reserve to lower interest rates, increased tariffs, and mass deportations, is a blueprint for inflationary chaos. And paradoxically, Trump is promising to bring deflation—a scenario that, if somehow achieved (don’t worry, it won’t be), would be potentially even worse.
One of Trump’s central proposals is a sweeping tax cut, part of a broader strategy to stimulate the economy. Trump has promised to extend and expand his massive billionaire bailout, the so-called 2017 Tax Cuts and Jobs Act, which slashed corporate tax rates from 35% to 21%, cut income taxes for high earners, and reduced taxes on investment income. His new plan aims to go even further, providing substantial tax reductions for individuals and businesses. While these cuts are framed as a way to boost growth and competitiveness, the economic effect of such cuts is stimulative—similar to a massive government spending program.
Tax cuts, especially during periods of economic instability, act as a form of fiscal stimulus. They increase disposable income for individuals and increase profits for corporations, thus encouraging more spending and investment. In a well-balanced economy, this might provide a temporary boost to growth. However, when inflation is already high and supply chains remain disrupted, such stimulus exacerbates the problem by increasing demand while supply struggles to keep pace. The result is higher prices across the board. Rather than cooling inflation, Trump’s tax cuts would stoke it, undermining efforts by the Federal Reserve to control rising prices.
Compounding the inflationary risks, Trump has proposed exerting pressure on the Federal Reserve to lower interest rates. Trump has long criticized the Fed for raising rates during his first term, arguing that cheaper borrowing would spur economic growth. However, the Fed’s role is to balance inflation with economic growth, and raising rates is a critical tool to combat inflation by reducing consumer and business borrowing. If Trump were to somehow force the Fed to cut rates, it would further fuel demand, directly counteracting efforts to control inflation. Such interference would not only lead to higher inflation but also undermine the Fed’s independence, a cornerstone of sound economic management.
Trump’s proposed 10% tariff on all imports is yet another inflationary force. Imposing tariffs raises the cost of imported goods, which American consumers and businesses rely on heavily. Everything from electronics to food to industrial materials would see price hikes. In fact, tariffs function as a tax on consumers, increasing the cost of goods and reducing purchasing power. This inflationary effect would ripple through the economy, increasing prices in both consumer goods and production inputs, further compounding the inflation problem.
Beyond these factors, Trump’s proposed mass deportation of undocumented immigrants would have significant inflationary and economic consequences. Undocumented immigrants make up a substantial part of the U.S. labor force, particularly in sectors such as agriculture, construction, and service industries. Estimates suggest that around 8 million undocumented immigrants are part of the workforce. Removing millions of these workers from an already strained labor market would drive wages higher as businesses scramble to fill vacancies. While wage growth may seem beneficial, it would push costs up for businesses, leading to price increases, which would again fuel inflation.
The cost of Trump’s mass deportation plan itself would also add to inflationary pressures. A 2016 estimate by the American Action Forum suggested that deporting all undocumented immigrants could cost between $400 billion and $600 billion. This massive expenditure, combined with the economic disruption caused by removing so many workers, would put further pressure on the federal budget, likely increasing the deficit and forcing more government borrowing—both of which would contribute to inflation.
Oh, and the whole idea is fascistic and evil. But that’s neither here nor there.
Adding to these inflation drivers, Trump has proposed increasing military spending, which has a stimulative effect on the economy. While boosting defense capabilities might appeal to certain voters, it also increases government spending, further contributing to demand in the economy. Like tax cuts, increased military spending would increase economic activity, but at a time when inflation needs to be curbed, not encouraged.
Yet, despite all of these inflationary proposals, Trump paradoxically promises deflation—claiming that his policies would actually bring prices down. This promise defies basic economic principles. But say, for some reason, he made it happen: deflation is actually harmful to the economy. If Trump’s policies somehow managed to drive prices down, the result would be a host of new problems.
Deflation leads to reduced consumer spending, as people delay purchases in anticipation of further price drops. This decreases overall demand, stalling economic growth. At the same time, deflation increases the real value of debt, making it harder for individuals and businesses to repay loans. Higher defaults and bankruptcies often follow, worsening the economic downturn. Businesses, facing declining profits, cut wages, lay off workers, and reduce investment, leading to rising unemployment. A deflationary spiral can take hold, where lower prices, reduced spending, and declining business activity reinforce one another, deepening the economic malaise.
Trump’s contradictory economic agenda—promising both inflation-driving policies like tax cuts and tariffs, while also promising deflation—reveals a fundamental misunderstanding of how the economy works. Or a fundamental disrespect for voters’ ability to understand how the economy works. His proposed policies would likely send inflation soaring in the short term, while his misguided promises of deflation would, if somehow realized, lead to economic stagnation and recession.
The dangers of such an approach are clear. Instead of addressing the root causes of inflation with targeted measures to stabilize supply chains, address labor shortages (like, say, with the help of immigrants), and invest in productivity-enhancing infrastructure, Trump’s policies would push the economy into dangerous territory. So why, again is this supposed to be a good issue for Trump?