Happy days are here again! At least so for most Mississippi voters and a thin, 1.6 percent national majority. I didn’t vote for Mr. Trump for reasons I have written about before. And the slate of people he is choosing to fill very important jobs does not inspire confidence. However, if he delivers as promised, we will all be better off. If not, we all will suffer the consequences. I pray fervently he will be a President for all Americans.
Others with informed opinions about internation relations, the Constitution and rule of law, ethics, and social justice have expressed concerns about many aspects of Mr. Trump’s plans and his character. My opinions in those areas are as a lay person. I can claim to have a bit more than average knowledge of economics. Therefore, I’ll confine my comments to the likely economic effects of some of Mr. Trump’s plans.
Apparently, for many voters, the false claim the economy is in bad shape was the decisive issue. Those who voted for Mr. Trump, expecting him to fix the economy, are likely to be very disappointed. How much better can the economy get?
Consider some data. Last month, the inflation rate was 2.7 percent, barely above the Fed’s target rate. From 2017 through 2019 (omitting 2020 because covid disrupted everything) inflation was slightly lower, averaging 2.1 percent. November’s unemployment rate was 4.2 essentially the same as it was during Mr. Trump’s first term, 4 percent (again omitting 2020).
During the Biden administration real wage growth has outpaced inflation by 5 percent compared to 4.8 percent from 2017 to 2020. During those three years GDP growth averaged 2.2 percent. Since 2020 annual GDP growth has averaged 3.4 percent. Increasing GDP growth by 1.2 percent a year is a big deal. During Mr. Trump’s first term, an average of 30.8 million jobs were added annually. From 2020 to date, average annual job creation has been about 3 million larger. President Biden’s term has seen more people working and real incomes growing faster than was the case in Mr. Trump’s first term. So the economy isn’t lousy, certainly not broken.
How will Mr. Trump fix what’s not broken? Nevertheless, he has plans for policy changes that will have big economic repercussions. I focus on only two of his oft repeated proposals, substantially raising tariffs and mass deportations of mostly Latin-American immigrants. Both will accelerate inflation. For the sake of brevity, I’ll consider only first-order effects. Policy actions such as those Mr. Trump proposes always have follow-on consequences that can magnify immediate effects, retaliatory tariffs by other nations, for instance.
First, a quick note about Mr. Trump’s promised tax cuts. Cutting taxes in an already robust, low inflation, full employment economy, as ours is, is a well-known receipt for inflation. Higher inflation, higher prices.
Tariffs. Contrary to what Trump voters may have been thinking, higher tariffs are ultimately paid for by American consumers, not importing firms. There are three inflationary forces at work when tariffs are imposed. First, importing firms will simply raise their prices. We do love our imports! Second, production of many goods is a global proposition, especially high-tech goods and automobiles. Even goods assembled in the U.S. will cost more as imported components will be more expensive. Third, when U.S. firms are “protected” by tariffs on foreign competitors they raise their prices. Higher inflation, higher prices.
As for mass deportations, immigrants make up a large share of unskilled workers, especially in food production chains. Therefore, employers will have to pay more, probably considerably more, to replace deported works, if they can find them at all. Higher labor costs will, of course, be passed along to consumers in higher retail prices.
It’s worth remembering 2019’s ICE raids in Mississippi were aimed mostly at chicken production and processing plants. Imagine the effect on food prices of ICE raids on a national scale. Higher inflation, higher prices.
If you voted for lower inflation and lower prices, things don’t look good for you. But if God affirmatively answers my prayers, I’ll be proven wrong.
P.S. Yesterday Mr. Trump said lowering food prices would be hard. He neglected to mention that before the election.
Merry Christmas.
Patrick Taylor lives in Ridgeland.
