The Inflationary Consequences of Trump’s Policies
For several years, voters have repeatedly expressed their frustration with rising inflation to both pollsters and pundits. Recently, we have witnessed the election of a president whose proposed policies—particularly sweeping tariffs and the mass deportation of undocumented immigrants—could likely trigger a significant increase in inflation.
How will voters respond to this potential economic shift?
In previous discussions, I have highlighted the probable inflationary effects of Donald Trump’s economic strategies. While those points remain valid, there is an aspect that deserves further emphasis: the direct impact his immigration policies might have on housing and grocery prices, both of which have become key political issues.
To provide context, let’s first consider the implications of deficits. The nonpartisan Committee for a Responsible Federal Budget has projected that Trump’s tax proposals could add nearly $8 trillion to the national debt over the next decade.
Trump has asserted that he can offset the revenue lost from tax cuts through tariffs and drastic reductions in government spending; however, these assertions are widely regarded as unrealistic.
While it is a common belief that deficits lead to inflation, this is not always the case. For instance, after the 2008 financial crisis, many predictions of inflation driven by deficits were proven incorrect, as basic economic principles indicated that deficits do not exert inflationary pressure in a depressed economy. Similarly, even President Biden’s substantial spending in 2021 occurred within an economy characterized by low employment levels. The inflationary effects were further alleviated by a surge in immigration, which expanded the labor force and enhanced the economy’s ability to satisfy increased demand.
However, in the scenario where Trump assumes office again, starting from what is essentially full employment and implementing mass deportations, he would likely diminish productive capacity. This would result in ballooning deficits and—ultimately—bring inflation back with a vengeance. In this regard, he might fulfill his harsh immigration promises while simultaneously reneging on his commitments to provide relief to American consumers.
