Among prominent economists, no one was more explicit than former Treasury Secretary Larry Summers in warning that President Joe Biden and the Federal Reserve Board risked igniting inflation by overstimulating the economy in 2021. Soaring prices over the next few years proved Summers correct.
Now Summers sees the risk of another price shock in the economic plans of former President Donald Trump. “There has never been a presidential platform so self-evidently inflationary as the one put forward by President Trump,” Summers told me in an interview this week. “I have little doubt that with the Trump program, we will see a substantial acceleration in inflation, unless somehow we get a major recession first.”
Summers is far from alone in raising that alarm. Trump’s greatest asset in the 2024 campaign may be the widespread belief among voters that the cost of living was more affordable when he was president and would be so again if he’s reelected to a second term. But a growing number of economists and policy analysts are warning that Trump’s second-term agenda of sweeping tariffs, mass deportation of undocumented migrants, and enormous tax cuts would accelerate, rather than alleviate, inflation.
In an upcoming analysis shared exclusively with The Atlantic, Mark Zandi, the chief economist for Moody’s Analytics, forecasts that compared with current policies, Trump’s economic plans would increase the inflation rate and force the Federal Reserve Board to raise interest rates higher than they would be otherwise. “If he got what he wanted,” Zandi told me, “you add it all up and it feels highly inflationary to me.”
In a study released last month, the nonpartisan Peterson Institute for International Economics calculated that the tariffs Trump says he will impose on imports would dramatically raise costs for consumers. “Trump is promising a no-holds-barred, all-out protectionist spree that will affect every single thing that people buy that is either an import or in competition with imports,” Kimberly Clausing, a co-author of the study and a professor of tax policy at the UCLA Law School, told me.
Douglas Holtz-Eakin, president of the center-right American Action Forum and a former director of the Congressional Budget Office, is sympathetic to many elements of Trump’s agenda and critical of Biden’s. But Holtz-Eakin agrees that Trump’s economic plan “doesn’t bode well” for “the cost of living,” as he told me.
Summers, who served as Treasury secretary for Bill Clinton and the top White House economic adviser for Barack Obama, took substantial flak from fellow Democrats when he repeatedly warned that Biden was risking high inflation by pushing through Congress another massive COVID-relief package in 2021, while the Federal Reserve Board was still maintaining interest rates at historically low levels. “The Biden administration and the Fed both did make … consequential errors of failing to do macroeconomic arithmetic for which the economy is still paying,” he told me.
Summers told me he remains unsure that the policies Biden and the Fed are pursuing will push inflation all the way down to the Fed’s 2 percent target. But he said he is confident that Trump’s blueprint would make inflation worse.
Summers identified multiple pillars of Trump’s economic agenda that could accelerate inflation. These included compromising the independence of the Federal Reserve Board, enlarging the federal budget deficit by extending his 2017 tax cuts, raising tariffs, rescinding Biden policies designed to promote competition and reduce “junk fees,” and squeezing the labor supply by restricting new immigration and deporting undocumented migrants already here. Others note that top Trump advisers have also hinted that in a second term, he would seek to devalue the dollar, which would boost exports but further raise the cost of imported goods.
For many economists, Trump’s plans to impose 10 percent tariffs on imported products from all countries and 60 percent tariffs on imports from China are the most concerning entries on that list.
These new levies go far beyond any of the tariffs Trump raised while in office, several of which Biden maintained, said Clausing, who served as the Treasury Department’s deputy assistant secretary for tax analysis for Biden’s first two years. Trump’s proposed tariffs also dwarf the levies Biden recently imposed on electric vehicles and assorted other products from China: Biden’s new measures affect about $18 billion in Chinese imports, she said, whereas Trump proposes to raise tariffs on $3.1 trillion in imported goods, more than 150 times as much. Trump “has been quite clear that he is envisioning something quite a bit larger than he did last time,” Clausing told me.
In the Peterson study, Clausing and her co-author, Mary Lovely, calculated that Trump’s tariffs would raise prices for consumers on the goods they purchase by at least $500 billion a year, or about $1,700 annually for a middle-income family. The cost for consumers, she told me, could be about twice as high if domestic manufacturers increase their own prices on the goods that compete with imports.
“When you make foreign wine more expensive, domestic manufacturers can sell their wine at a higher price,” Clausing told me. “The same with washing machines and solar panels and chairs. Anything that is in competition with an import will also get more expensive.”
While Trump’s proposed tariffs would increase the cost of goods, his pledge to undertake a mass deportation of undocumented migrants would put pressure on the cost of both goods and services. Undocumented migrants are central to the workforce in an array of service industries, such as hospitality, child care, and elder care. But they also fill many jobs in construction, agricultural harvesting, and food production. Removing millions of undocumented workers from the economy at once “would create massive labor shortages in lots of different industries,” Zandi told me. That would force employers to either raise wages to find replacements or, more likely, disrupt production and distribution; both options would raise the prices consumers pay. “If you are talking about kicking 50 percent of the farm labor force out, that is not going to do wonders for agricultural food prices,” David Bier, director of immigration-policy studies at the libertarian Cato Institute, told me.
Removing so many workers simultaneously would be disruptive under any circumstances, many economists agree. But it could be especially tumultuous for the U.S. now because the native-born population has grown so slowly in recent years. Bier pointed out that immigrants and their children already account for almost all the growth in the population of working-age adults ages 18 to 64. If Trump in fact extracts millions of undocumented migrants from the workforce, “there is no replacement [available] even at a theoretical level,” Bier said.
More difficult to quantify but potentially equally significant are the frequent indications from Trump that, as with all other federal agencies, he wants to tighten his personal control over the Federal Reserve Board. During his first term, Trump complained that the Fed was slowing economic growth by keeping interest rates too high, and any second-term move to erode the Fed’s independence—for instance, by seeking to fire or demote the board’s chair, Jay Powell—would be aimed at pressuring the board into prematurely cutting interest rates, predicts Alan Blinder, a former Fed vice chair who is advising Biden’s reelection campaign. That would become another source of inflationary pressure, he says, likely spooking financial markets.
In the upcoming Moody’s analysis, Zandi estimates the cumulative impact of all these possible changes. He compares a scenario in which Trump can implement his entire agenda with one in which power remains divided between Biden in the White House and Republicans controlling at least one congressional chamber. Inflation, Zandi projects, would be nearly a full percentage point higher (0.8 percent, to be exact) under the scenario of Trump and Republicans in control than in the alternative of Biden presiding over a divided government. Inflation would be about that much higher under Trump even compared with the less likely scenario of Democrats winning the White House and both congressional chambers, Zandi projects.
Zandi said the only reason he does not anticipate prices rising even faster under Trump is that the Federal Reserve Board would inevitably raise interest rates to offset the inflationary impact of Trump’s proposals.
But those higher interest rates would come with their own cost: Zandi projects they would depress the growth in total economic output and personal income below current policy, and raise the unemployment rate over the next few years by as much as a full percentage point—even as inflation rises. Raising the specter of the slow-growth, high-inflation pattern that hobbled the American economy through much of the 1970s, Zandi told me, “It is really a stagflation scenario.”
Summers sees the same danger. “It is difficult to predict the timing and the precise dynamics,” he told me, “but it is hard to imagine a policy package more likely to create stagflation” than measures that directly raise prices (through tariffs), undermine competition, enlarge deficits, and excessively expand the money supply. “There is a real risk during a Trump presidency that we would again see mortgage rates above 10 percent as inflation expectations rose and long-term interest rates increased,” he predicted.
Holtz-Eakin, the former CBO director, also worries that Trump’s agenda would make it much tougher for the Federal Reserve Board to moderate prices without precipitating a recession. Unlike Zandi and Summers, though, Holtz-Eakin believes that a second-term Biden agenda would also increase upward pressure on prices. That’s partly because of the cost of environmental and other regulations that the administration would impose, but also because he believes a reelected Biden would face enormous pressure to restore new spending programs that the Senate blocked from his Build Back Better agenda in 2021. He also believes that Trump’s plans to increase domestic energy production could eventually offset some of the inflationary impact of his other agenda elements.
Kevin Hassett, who served as chair of the Council of Economic Advisers during the Trump administration, has argued that any inflationary impact from Trump’s tariff and immigration agenda would be offset by other elements of his plan—including cutting government spending and taxes, increasing energy production, and slashing regulation. “Those four effects would dwarf the effects of any other policy proposals,” Hassett maintained in an interview with The Washington Post earlier this year.
Holtz-Eakin isn’t convinced. He told me that any moderating impact from Trump’s energy and deregulatory agenda would take time to develop, while the inflationary effect of his tariffs and deportation plans would be felt immediately. “Tariffs happen fast,” Holtz-Eakin said. “Deportations happen fast.”
Zandi is even more skeptical. He told me that with domestic oil and gas production already at record levels, Trump has little room to open the spigot even further, or to affect prices much if he does. On regulation, Zandi said he is “hard-pressed” to see how Trump’s plans “would translate through to less inflation, at least in a meaningful way.”
As with many issues, the potential impact of Trump’s second-term plans for inflation has drawn little attention in the presidential race. Instead, the former president so far is benefiting from voters’ awareness that prices increased much faster under Biden, as the American and global economies emerged from the pandemic’s disruptions, than they did while Trump was in office.
Apart from concerns about Biden’s age, that discontent over inflation appears to be the greatest threat to his reelection. In a recent survey across the seven most closely contested swing states published by the Cook Political Report With Amy Walter, a majority of voters said they considered their cost of living the most important measure of the economy’s performance. But a daunting three-fifths of voters in the poll, conducted by a bipartisan team of Republican and Democratic pollsters, said inflation is unlikely to be brought under control if Biden is reelected. In contrast, nearly three-fifths of voters said they believed that the cost of living would improve under Trump.
Even though experts such as Summers and Zandi are warning that Trump’s economic agenda would have precisely the opposite effect, it won’t be easy for Biden to convince voters to weigh those prospective risks more heavily than their retrospective judgments about prices under each man’s tenure. But Biden may have no choice but to try. Raising awareness of the inflationary dangers in Trump’s agenda may be Biden’s best chance of winning a second look from the voters who are now moving toward the former president primarily because they remember gas, groceries, and other necessities costing less while he sat in the Oval Office.
