How Trump’s Big Government Policies Will Hurt the Consumer

Americans have been punished with high prices throughout the 2020s. Thanks to astronomical spending during Covid-19, inflation rose as high as 9.1%. Interest rate hikes cut it and it sat at 3% in the beginning of the year, but inflation still weighed on American consumers through 2024, playing a key role in re-electing Donald Trump and bringing a Republican majority back to Congress. Trump and the Republicans promised during their campaigns to lower prices. But their signature economic and domestic policies so far—tariffs and immigrant deportations—will almost certainly raise them. 

The Double-Edged Sword of Tariffs

Before launching into a critique on the economic downsides of tariffs, I should note their political upsides.Trump’s premise is that America should use its status as the world’s biggest consumer for bargaining power. If other countries refuse to enact policies that are in America’s best interest, threaten to tariff their imports until those countries capitulate. Already this worked with Canada, when Prime Minister Justin Trudeau agreed to stronger border enforcement rather than absorb a 25% tariff on Canadian goods.Such a strategy will prove brilliant if Trump can dangle these threats without ultimately causing tariffs and trade wars. But the problem is that he actually seems to want them. He has for decades viewed the globalized, low-tariff trade economy as harmful to America, stating in a 1980s interview: “America is being ripped off … we have to tariff, we have to protect this country.” He and the larger MAGA movement think that the gains of the globalized economy have come at a cost to working-class, non-college-educated Americans. His second term agenda fully embraces protectionism. The administration seeks to tax goods from China at 60%; and along with the Canadian tariffs, may also impose 25% duties on Mexican goods. But economists are generally against tariffs. The Tax Foundation projects consumer costs surging as much as $300 billion per year. A Yale study finds that tariff proposals could cut purchasing power by $1,200. A Federal Reserve study found that Trump’s 2018 tariffs imposed a $419 cost on households. His tariffs  drove prices up as much as 7.1%.The price increases from tariffs offset any gains for specific industries by harming the overall domestic economy. These policies also harm American exporters via retaliation; China has already slapped 10-15% tariffs on energy and farming products from America. It’s worth noting that during Trump’s first term, manufacturing jobs shrank. In general, protectionist regulations have a poor track record of meaningfully growing or protecting jobs. 

The Economic Impact of Immigrant Deportations

The administration is implementing an aggressive deportation strategy, planning to deport millions of illegal immigrants beyond those who have committed serious crimes. This risks extreme labor shortages and higher costs for producers and consumers. Around 32 million – or 19% – of the employed population are foreign born, and illegal ones concentrate in specific industries. According to USDA figures, around 42% of crop farmworkers “held no work authorization.” In Texas alone, some 295,400 construction employees, just over 23%, were in the country illegally.Some argue that deportations can protect American workers. The thought is that in addition to breaking the law, illegal immigrants have taken jobs from and depressed the wages of American citizens. But even with those high immigration numbers, employers had a hard time attracting employees. Take them away, and American industries will see not only labor shortages, but a spike in wage growth that would foster another, steeper inflationary surge. A 2011 crackdown on illegal immigration in Alabama had such an effect. Migrants left the state en masse, and there was not sufficient workforce demand to fill the jobs. The result was massive crop failures.With lower labor force participation and, in the longer view, very low birthrates, immigration in some form is necessary to bolster America’s workforce population and keep costs manageable.

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There are, of course, positive aspects to Trump’s economic platform. Government spending cuts, of the sort being organized under Elon Musk’s leadership at DOGE, would reduce inflation. Deregulation, very much a Trump staple in other ways, should improve economic dynamism. But hopefully this is not offset by other measures that strip Americans of their spending power and wealth. Trump’s ideas for immigration and tariffs might do that, leading, unfortunately, to a Biden Administration 2.0.Cover image use authorized in the public domain.