The deportation of millions of people from the United States, steeper tariffs, and the erosion of the Federal Reserve’s political independence may make, for some, compelling political speechery, but the economic consequences are daunting, according to a study released Thursday by the nonpartisian Peterson Institute for International Economics.
"We find that these steps would result in lower US national income, lower employment, and higher inflation than otherwise. In some cases, economic conditions recover over time, but in others the damage continues through 2040," the authors write. "And despite Trump’s “America first” rhetoric, these policies would harm the US economy more than any other in the world, particularly trade-exposed sectors such as manufacturing and agriculture. In some cases, other countries would enjoy stronger economic growth than otherwise after receiving inflows of capital leaving the United States. "
If Candidate Trump’s policies are enacted, the authors find:
A revival of the Eisenhower-era "Operation Wetback,' deporting 1.3 million to 8.3 million unauthorized immigrant workers, would shrink the economy largely by reducing the number of potential workers and their demand for goods and services.
"Losing so many workers increases costs in the sectors directly affected," the authors write. "It also causes a fall in the return on capital in each sector (notably agriculture), reducing investment across the economy, adding to the contraction in output.
Both GOP tariff plans—10 percentage point additional tariffs on US imports from all sources and 60 percentage point additional tariffs on imports from China—reduce US real GDP and employment by 2028.
The US effects vary by sector, with durable manufacturing taking the biggest hits—the opposite of Trump’s stated goals.
A looser monetary policy could result in significant cross-border financial spillovers. The concern is that the president would press the US central bank to set interest rates lower than otherwise to spur stronger economic growth despite the likelihood of driving inflation higher.
Once global investors comprehend the Fed’s loss of independence, risk premia rise, likely prompting capital outflows from the US economy. This eventually translates into a fall in physical investment, reducing potential GDP over time.
“The International Economic Implications of a Second Trump Presidency,” [link]
The Peterson Institute was founded in 1981 as the Institute for International Economics. Its name was changed in 2006 in honor of its founding chairman, Peter G. Peterson, cofounder of The Blackstone Group and former Secretary of Commerce and Assistant to the President for International Economic Policy in the Nixon Administration.
Comments
No comments on this item Please log in to comment by clicking here