My latest column is about how inflation is fading as both an economic and a political issue — which is good news for Kamala Harris and bad news for Donald Trump. Yet it remains quite possible that Trump will win. And if he does, inflation may become a major problem again.
Economic forecasters surveyed by The Wall Street Journal last month generally predicted that inflation would be higher if Trump won than if President Biden (still the Democratic nominee at that point) won. As you might guess, I agree. In fact, I believe that most analysts are still understating just how inflationary a second Trump term might be.
Why? Because I don’t think even most economists fully appreciate the possible interactions between Trump’s love of tariffs, his desire to politicize the Fed and his expressed desire for a weaker dollar.
Start with tariffs. Trump has been saying for a while that he wants to put a “ring around the collar” of the U.S. economy, with 10 percent tariffs on everyone and a much higher rate on China. Lately he’s been going bigger, suggesting a 20 percent rate. I wouldn’t put much weight on these numbers, which he’s surely pulling out of thin air. But for what it’s worth, tariffs at the rates Trump is suggesting would be seriously inflationary, raising prices enough to reduce the typical family’s purchasing power by 4 percent according to this estimate:
In case you’re wondering, this chart also shows the impact of Trump’s plans to extend his 2017 tax cut, which would do little to offset the effects of the tariffs for most people but would produce a net gain for, you guessed it, the top 1 percent.
But rather than take Trump’s made-up numbers seriously, it probably makes more sense to ask what he would be trying to do. We know that Trump has a mercantilist view of trade, in which we win if we run a trade surplus, lose if we run a trade deficit. So the goal of his tariffs would be to eliminate the U.S. trade deficit.
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