Trump could drive up inflation with second-term economic agenda, analysts say

Former President Donald Trump is crafting an economic agenda for his second term that analysts say could revive the inflation he criticized President Joe Biden for creating.

“I call it a ring around the country. We have a ring around the country,” Trump said in a TIME interview published Tuesday, referring to the aggressive tariffs he promised to impose in a second mandate. “I also don’t believe the costs will increase that much.”

The presumptive Republican presidential nominee has repeatedly pledged to raise tariffs, cut taxes and encourage cheap money if he wins the November election.

Still, economists and Wall Street analysts agree that these plans would likely lead to higher consumer prices.

Trump flatly rejected the idea: “I don’t believe it will be inflation. I think it will be the absence of losses for our country,” he said in the interview with TIME.

Trump has pledged to raise tariffs by 10% on imports across the board, and to raise them even more – between 60% and 100% – for China and Mexico.

He also wants to extend the first term’s tax cuts, which widened deficits when initially implemented and are set to expire in 2025.

“I will make the Trump cuts permanent…and we will cut your taxes even more,” Trump said at a February rally in South Carolina.

Additionally, Trump has signaled his intention to replace Federal Reserve Chairman Jay Powell and then pressure the next Fed chair to lower interest rates. Trump allies have also been working on plans to force the Fed to consult with Trump on interest rate decisions, according to a Wall Street Journal report.

Analysts view the proposals as threats to inflation’s rocky path back to the commonly accepted ideal level of around 2%.

“A second Trump term could bring higher tariffs, attempts to weaken the dollar, even higher deficits, the deportation of illegal immigrants and other policies that could put upward pressure on inflation,” Piper Sandler analysts wrote last week.

“Most of the major policy initiatives suggested by the Donald Trump campaign would be inflationary,” Paul Ashworth, chief North America economist at Capital Economics, wrote Monday. “Whether that means reducing the trade deficit through tariffs or devaluing the dollar, curbing immigration or, as we are now learning, compromising the independence of the Fed.”

When it comes to tariffs, Wall Street analysts note that companies are passing on higher import costs to their customers by raising prices.

Trump categorically rejected this ideae Maintenance TIME. “A lot of people say, ‘Oh, it’s going to be a tax on us.’ I don’t believe it. I think it’s a tax on the country that (exports it).

Trump’s tariff policies “would constitute a significant escalation over existing trade policy, and they would further increase costs for U.S. importers, put upward pressure on inflation, and could strengthen the U.S. dollar,” the authors wrote. Wells Fargo analysts in a report published in early April.

But this inflationary impact “could be partially absorbed in the near term,” Wells Fargo analysts added, explaining that many suppliers have begun to diversify their inventories away from “products subject to tariffs.”

The Trump-era tariffs imposed on China, which nearly sparked a trade war, had only a “marginal” effect on the economy, according to the Wells Fargo report: “The sharp rise in prices in consumption is mainly attributed to the disruptions of the pandemic rather than the consequences of the trade war. prices.”

Contacted for comment, the Trump campaign said, “under President Trump, inflation was nonexistent, gas was cheap, groceries were affordable, and the American dream was alive and well.”

Despite the inflationary threat posed by core elements of Trump’s agenda, polls have consistently found that voters trust Trump more than Biden to lower the cost of living and manage inflation.

Voters’ nostalgia for Trump’s economy is partly a byproduct of the scars left on them by post-pandemic inflation.

In January 2017, when Trump took office, the Consumer Price Index, a key indicator of inflation, was stagnant at an annual rate of 2.51%. This figure fell during his administration, and by the time Biden entered the Oval Office, the 12-month inflation rate was 1.40%.

By the summer of 2022, year-over-year CPI had climbed to around 9%, driven primarily by the collision of pent-up consumer demand and a crowded global supply chain that could not not delivering products quickly enough. The CPI has since cooled, to 3.48% in March this year.

But that inflationary whiplash over the past five years appears to have left many voters with bitter memories of the Biden economy.

He also catapulted into voters’ minds a data point that is typically only tracked by economists and introduced it to a new generation.

The last time inflation exceeded 9% was in 1981. The only Americans who were over 18 in 1981, and therefore most likely to directly feel the price surge, are those who today , are 61 years old and over. For everyone else, this type of inflation has no precedent in their adult lives.

Biden faced a daunting task convincing voters that they are better off thanks to his economic accomplishments, including low unemployment, sustained GDP growth and historic investments in clean energy.

In recent months, Biden has also taken a more aggressive stance regarding possible trade restrictions against China. Earlier in April, Biden said he wanted to triple tariffs on imported Chinese steel and aluminum.

But while Biden made his economic case to voters, Trump capitalized on the charged economic data of the past few months to lambast his opponent and the Fed.

“INFLATION is BACK – and RAGING!” ” Trump wrote in a Truth Social article earlier in April. “The Fed will never be able to credibly lower interest rates because they want to protect the worst president in American history!”

It’s unclear what the former president meant by that, especially since Powell, a longtime Republican, was appointed by Trump.