WASHINGTON (news agencies) — Fed up with high prices and unimpressed with an economy that by just about any measure is a healthy one, 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 campaigned on promises 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 — 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 frustrated over still-high prices.
“His track record proved to be, on balance, positive, and people look back now and think: ‘Oh, OK. Let’s try that again,’ ” 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 has skyrocketed 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’s plans are likely to worsen the inflation he’s vowed to eradicate, drive up the federal debt and eventually slow growth.
The Peterson Institute for International Economics, a leading think tank, has estimated that Trump’s policies would slash the U.S. gross domestic product — the total output of goods and services — by between $1.5 trillion and $6.4 trillion through 2028. Peterson also estimated that Trump’s 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’s policies were enacted in full.
Last month, 23 Nobel-winning economists signed a letter warning that a Trump administration “will lead to higher prices, larger deficits, and greater inequality.”
“Among the most important determinants of economic success,” they wrote, “are the rule of law and economic and political certainty, and Trump threatens all of these.’’
Trump is inheriting an economy that, despite frustratingly high prices, looks fundamentally strong. Growth came in at a healthy 2.8% annual rate from July through September. Unemployment is 4.1% — 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 “envy 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 cut its benchmark rate in September and again this week.
Consumers, though, still bear the scars of the inflationary surge. Prices on average are still 19% higher than they were before inflation began to accelerate in 2021. Grocery bills and rent hikes are still causing hardships, especially for lower-income households. Though inflation-adjusted hourly wages have risen 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 news agencies VoteCast, a sweeping survey of more than 120,000 voters nationwide, 3 in 10 voters said their family was “falling behind’’ 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.
“I don’t think it’s either deep or complicated,’’ Holtz-Eakin said. “The real problem is the Biden-Harris team made people worse off, and they were very angry about it, and we saw the result.’’
The irony is that mainstream economists fear Trump’s remedies will make price levels worse, not better.
The centerpiece of Trump’s economic agenda is taxing imports. It’s an approach that he asserts will shrink America’s 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’s now promised much more of the same: Trump wants to raise tariffs on Chinese goods to 60% and impose a “universal’’ tax of 10% or 20% on all other imports.
Trump insists that other countries pay tariffs. In fact, American companies pay them — and then typically pass along their higher costs to their customers via higher prices. Which is why taxing imports is normally inflationary. 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’s 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.
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