Economists Warn Trump's Plans For Tax Cuts, Tariffs and Deportation Could Trigger Skyrocketing Inflation – Here's How It Might Happen

Donald Trump was in the hot seat recently at the New York Economic Club, fielding tough questions on the rising costs of child care. His response, however, took a sharp turn into familiar territory – tariffs. Trump confidently declared that tariffs would bring in “trillions of dollars” for the U.S. government, downplaying the cost of child care as "not very expensive" compared to the revenue he expected from tariffs.

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However, Trump’s tariff proposal, which joins tax cuts and mass deportations as his top priorities, has drawn significant attention for its potential to worsen inflation – an issue that remains top-of-mind for American voters.

Although inflation has eased to 2.5%, everyday prices like groceries and housing remain sky-high. Food is still 25% more expensive than in 2020 and housing prices show no sign of coming down. The inflation issue took center stage at this week’s presidential debate, with both candidates pledging to address the crisis.

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Goldman Sachs recently issued a stark warning: Trump's proposed tariffs could increase inflation by 1.2% by 2025. That's not the only red flag. Economists say Trump’s tax cuts and mass deportations could also fuel inflation. 

"If you cut taxes and the Federal Reserve lowers interest rates, you’re boosting demand without increasing supply," some economists argue. With unemployment already at record lows, these moves could spell trouble.

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Back in July, a survey by the Wall Street Journal revealed that most economists believed inflation would rise under Trump's leadership compared to a second Biden term. Sixteen Nobel Prize-winning economists even wrote that Trump's policies posed "serious risks" to the U.S. economy. “Nonpartisan researchers predict that if Trump enacts his agenda, it will lead to more inflation,” the Nobel laureates said.

However, Trump has his defenders. E.J. Antoni from the conservative Heritage Foundation noted that Trump enacted similar policies during his first term without triggering runaway inflation. "People said the same thing back then, but it didn't happen," Antoni stated.

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Despite Trump's vow to "get rid of inflation," his plan remains vague. Justin Wolfers, an economist at the University of Michigan, said Trump's approach isn't a concrete policy. "Saying ‘I will ask people for their ideas' is not a plan to reduce inflation," Wolfers quipped.

Other economists have echoed this sentiment, pointing out the lack of details behind Trump's promises. Kimberly Clausing from the Peterson Institute for International Economics was blunt: "I don't think we've seen a more inflationary platform."

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Trump's proposed tariffs on Chinese goods, which could reach 60%, are a particular concern. Studies suggest these tariffs would cost the average American household an additional $2,600 annually.

Although some argue that tariffs protect American jobs, Wolfers cautioned, "Every dollar of tariff revenue will come from higher prices paid by Americans." Some pro-tariff groups, like the Coalition for a Prosperous America, argue that consumers will eventually switch to U.S.-made goods, softening the blow. But many believe the tariffs will deliver the "sharpest inflation shock in quite some time."

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