President-elect Donald Trump won a return to the White House in part by promising major changes in economic policy — more tax cuts, massive tariffs, mass deportations of immigrants working illegally in the United States
WASHINGTON — President-elect Donald Trump won a return to the White House in part by promising major changes in economic policy — more tax cuts, massive tariffs, mass deportations of immigrants working illegally in the United States.
In some ways, his victory marked a rejection of President Joe Biden’s economic stewardship and a protest against inflation. That happened despite low unemployment and steady growth under the Biden administration.
What awaits the economy under Trump? Paul Ashworth of Capital Economics recently spoke to The Associated Press. The interview has been edited for length and clarity.
A: It’s objectively a strong economy. But that doesn’t mean the man in the street agrees. If you just look at the growth rates, they have been strong, and the unemployment rate is quite low. But consumer confidence remains subdued. Although inflation has fallen, price levels remain much higher than before. That clearly weighed on consumer confidence.
A: There is a lot to do on the fiscal policy front when it comes to extending Trump’s original tax cuts, which expire at the end of 2025. The debt outlook is approaching 100% of GDP and is on track to reach 120% of GDP. GDP in another ten years. Extending the expiring tax cuts is about avoiding spending cuts, not introducing additional stimulus into the economy. We are not convinced that we will see further stimulus.
A: During his first term, Trump used tariffs as a negotiating tool to gain concessions from other countries. We see an echo of the recent threats to Canada, Mexico and China. I think there will be a 10% universal tariff and higher tariffs for China. I don’t think many countries would be able to get out of this situation. This affects the prices of final consumer goods. It will increase inflation by 1%. But this is a one-off change rather than an increase in persistent inflation.
A: It affects the supply side of the economy. But it also affects demand because these people are spending money. The question is which one is most affected, because that determines whether it is inflationary or deflationary. Our assessment is that the impact on the supply side of the economy will be slightly greater, in which case we consider it slightly inflationary. Some sectors, such as agriculture, construction, food processing and restaurants, would be hit harder. That’s where you would expect inflation to show up – in food prices, restaurant prices. Immigration policies and tariffs can slow growth by half a percent and increase inflation by 1%. It’s not ideal. But it is certainly not a disaster.