Americans have hated Joe Biden's inflation; they're going to loathe what Donald Trump is cooking up for them. Indeed, the Republican candidate's plan, featuring tariffs, mass worker deportations and attacks on the independence of the Federal Reserve (Fed) promises to be just as explosive as Biden's early term mistakes. Here comes season 2 of inflation.
Season 1 left its mark: The Democratic president decided on an excessive and ill-timed stimulus package in 2021, just as the American economy was bouncing back from the Covid-19 pandemic and had two effective vaccines at its disposal. Combined with the Fed's zero interest rate policy, based on the assumption inflation would be temporary, and the post-Covid disruption of supply chains, inflation soared to 9.1% by June 2022. General price increases reached 20% during Biden's term in office.
Under Trump, it could be disastrous too, as evidenced by a study published on September 26 by the center-left, pro-globalization Peterson Institute for International Economics, based in Washington, which explores three pillars of the Republican candidate's promised policy.
The first is to deport the undocumented workers who keep the American agriculture and industrial sectors going. The candidate has taken his cue from a massive deportation operation carried out in 1956 by Dwight Eisenhower, who expelled around 1.3 million workers to Mexico. The high end of Trump's plan would be to deport all illegal immigrants – 8.3 million people. The second axis of the Republican plan is to immediately impose a 10% tariff on all imports, rising to 60% on those coming from China, which would raise import prices and penalize American exports if the US' trading partners were to retaliate.
Tighten the screw
The third axis: To appoint a chair of the Fed who would be more accommodating than Jerome Powell, and to meddle in monetary policy, as had been done during the stagflation years of the 1970s, until the appointment of Paul Volcker in 1979. This decision would be a self-fulfilling one, as the markets would anticipate greater inflation. All of these measures could be fairly easily taken by the president, without major support from Congress, although challenges in the courts are to be expected.
According to the Peterson Institute's calculations, annual inflation would jump to 7.4% in 2026 under the worst-case scenario (mass deportations, trade retaliation by US partners, etc.) and to 4.1% under the best-case scenario (few retaliation measures and deportations limited to 1.3 million people). Gross domestic product would grow less than expected during Trump's term, by almost 10% ($2.57 trillion) by the end of 2028 in the worst-case scenario, or, in the optimistic scenario, by 2.8% ($750 billion). Finally, the total US employment rate would fall by 1.1% to 6.7% by the end of 2028, depending on the number of workers deported.
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