The Economic Implications of Donald Trump's Return to Power

Donald Trump’s potential return to the White House in 2024 sends ripples through the U.S. economy, raising critical questions about the direction of American economic policy. While many supporters view Trump as a champion for the middle class, a closer examination of his proposed policies unveils significant risks that could jeopardize economic stability and exacerbate existing inequalities. With promises of tax cuts, tariffs, and deregulation at the forefront, the reality may unfold far differently than envisioned.

Tax Cuts: Relief or Irresponsibility?

At the core of Trump’s economic platform lies a familiar promise: tax cuts. The former president intends to extend the provisions of the 2017 Tax Cuts and Jobs Act (TCJA), which disproportionately benefited the wealthy while providing minimal relief for the working class. His advocacy for lowering the corporate tax rate to 15% raises eyebrows—particularly when considering that the 2017 cut has already contributed to ballooning deficits, which exceeded $1 trillion during his term. It is hard to ignore the paradox of advocating for tax relief while simultaneously increasing the national debt by approximately $8.4 trillion.

While proponents argue that these cuts will stimulate economic growth and job creation, historical evidence suggests otherwise. Economists from the Penn Wharton Budget Model indicate that most benefits from the TCJA have accrued to higher income brackets. For instance, a family earning $80,000 annually could expect a tax break of about $1,740, while the wealthiest households could see reductions exceeding $376,000—a clear indication of skewed benefits that risk deepening socioeconomic disparities as middle America grapples with inflation and stagnant wages.

Trade Wars: The Cost of Protectionism

Historically, Trump's approach to trade has been characterized by aggressive tariffs, particularly against China. His campaign promises to impose a 10% to 20% tariff on all imports and a staggering 60% on Chinese goods could backfire, raising prices for American consumers while failing to bring significant manufacturing jobs back home. Past research indicates that these tariffs often lead to diminished job prospects in industries they target, ultimately harming the very workers they aim to protect.

The economic pain inflicted by tariffs transcends mere price increases; it strikes at the heart of consumer confidence and purchasing power. As grocery costs and consumer goods prices rise, the promise of job growth becomes a hollow refrain amidst household financial strain. A typical middle-class family could see an annual increase in expenses amounting to $1,700 due to Trump's proposed tariffs. Thus, while touting strategies to bolster American manufacturing, the reality appears to be a cycle of higher costs that primarily burdens everyday citizens, particularly as they face an inflationary environment—the very nightmare Trump pledges to eliminate.

Immigration Policies: Talent or Tension?

Trump’s tough stance on immigration could also have cascading effects on the U.S. labor market. His campaign proposals to deport millions of undocumented immigrants and restrict legal immigration threaten to exacerbate labor shortages, particularly in sectors like agriculture and construction that already struggle with workforce availability. Reducing the workforce of essential service sectors may only serve to drive wages higher—a process that, while beneficial for some, could worsen inflation for many others.

The narrative Trump sells—positioning immigration as a threat—isolates the contributions of foreign-born workers who have historically supported economic growth. The Brookings Institution warns that cutting off this talent pool will lead to labor market inefficiencies, raising operational costs for businesses and reducing potential economic growth. Yet, amidst the fervor and rhetoric lies a troubling paradox: by turning immigrants into scapegoats, Trump jeopardises the workforce essential for bolstering an economy he claims to champion.

The Fed and Financial Independence

Perhaps one of the more insidious elements of Trump’s economic approach is his desire to influence Federal Reserve policies—a move that undermines the institution’s independence, crucial for managing inflation and ensuring economic stability. Historically, the Fed operates best when insulated from political pressures, allowing it to make tough decisions based solely on economic indicators. Trump’s mindful disregard for this separation raises concerns about politicised monetary policy that could destabilise the economy in the long run.

Imagine succumbing to inflationary pressures once again, not through external factors but via a misguided agenda aiming to cater to political whims. Trump has repeatedly dismissed the efficacy of independent monetary policy, suggesting a hands-on approach that critics argue could lead to repeated cycles of inflation, hampering sustainable growth. Such a trajectory not only threatens the inflation goals set by the Fed but also erodes trust and predictability in U.S. economic management, crucial for both domestic and foreign investors.

​As Donald Trump navigates his path back to power, the stakes for the U.S.​ economy are alarmingly high. While his proposals might resonate with a base yearning for a return to the perceived economic triumphs of his previous term, the complexities of fiscal responsibility, inflation control, and labor market dynamics suggest that his approach could lead to unintended consequences detrimental to broader economic stability. The challenge lies in embracing policies that genuinely foster inclusive growth while addressing the legitimate pain points faced by Americans today. As these discussions unfold, it is imperative to remain vigilant and critical of policies that prioritise short-term gains over long-term sustainability, ultimately challenging the notion of what it means to build a prosperous economy for all.

Naija Mehra