Playing Chicken with the Economy

We’re watching Trump like a raven on roadkill

Credit: Getty Images

Let’s set today as a marker. December 9, 2024, will serve as our day to see where the American economy is. We’ll come back in six months, and a year from now (God willing) to see if Donald Trump’s guiding hand on America’s economic levers have improved our lives, or they have not. Will we prosper, or as many fear, will it look like he’s trying to play the piano with boxing gloves — difficult to watch, harder to listen to.

President-elect Trump is a very lucky man. Rarely has an incoming president been handed such a robust and growing economy, except maybe the economy Trump inherited from Barack Obama in 2017.

Today the unemployment rate is 4.2%. Inflation is dropping, now at 2.6%. Last month, 227,000 jobs were added nationwide. The gross domestic product is up nearly 5 percent from last year. Joe Biden has overseen a booming stock market, double-digit growth, and the lowest unemployment rate in decades — a rare bright spot in the post-pandemic global economy.

If Trump simply changed nothing, he could not only sit pretty for the next four years but reap the political rewards of strong economic growth. But you and I both know that’s not going to happen.

Trump issued several economic campaign pledges that he has vowed to make good on: tax cuts, tariffs, and mass deportation. Individually each of these policy changes could have deleterious effects on the U.S. economy. If he manages to make all three happen, it could mean an economic earthquake. With a perceived mandate, majorities in the House and Senate, and more blind loyalists surrounding him, the probability of some, if not all, of this coming to pass is frighteningly high.

TAX CUTS
Trump has floated a number of changes to the tax code. His most discussed tax cut is an extension of the one he championed during his first term. Those tax cuts disproportionately helped the wealthiest Americans. He has also signaled a desire to cut corporate taxes and exempt certain income like Social Security, tips, and overtime pay. All these tax cuts and exemptions would cost the U.S. Treasury dearly, adding billions to the deficit. Trump says not to worry — his new tariffs will make up the difference. But at what cost?

TARIFFS
A tariff is another name for an import tax. The United States is the largest importer of goods in the world. Trump has proposed massive tariffs, also known as taxes, on everything coming into the country: 25% on imports from Mexico and Canada; a whopping 60% on Chinese imports; and 20% on everything else. The nonpartisan Peterson Institute for International Economics estimates the new tariffs would cost every American household an average of $2,600 a year, so effectively a new tax.

The incoming president claims the tariffs will not only pay for his tax cuts but will be used to make Mexico, Canada, and China stop illegal immigration and illegal drugs from flowing into the U.S.

For an electorate that is overwhelmingly worried about the economy — 7 in 10 Americans said they were very concerned about the price of food — tariffs are a risky choice. At best, companies will pass on the added cost to consumers. At worst, whole industries could be shuttered.

Everything from groceries and clothing to gas and automobiles will be affected by tariffs. Walmart, which imports 70-80% of its inventory from China, has already warned of price increases. Mexico grows more than half of the fruits and vegetables consumed in this country. Oil and gas imports from Canada are at an all-time high.

The auto industry will also be hard hit if the tariffs go into effect. General Motors imports 30% of the cars sold in the U.S. GM’s stock price took a nosedive when Trump announced his plans to tariff goods from Mexico and Canada. With the average price of a new car at a record high, it is not an ideal time to make them more expensive. And if you want to fix your old car, it will cost more to repair it, because most replacement parts are made overseas.

These new tariffs could lead to a trade war. Countries that import goods from the United States will likely retaliate with their own tariffs, causing American manufacturers and farmers to suffer losses.

The specter of rising prices and inflation has not deterred Trump. In an interview on NBC’s “Meet the Press” Sunday, he said he can’t “guarantee” tariffs won’t raise prices, though he is skeptical it will happen. He defended tariffs by saying “they will make us all rich.” Please define “us” and “rich.”

MASS DEPORTATION
Part of Trump’s winning election strategy was to characterize the U.S. border as a sieve allowing millions of criminals and degenerates to pass through. While that is not true, a lot of people believed him. According to the Pew Research Center, there are at least 11 million undocumented immigrants living in the United States, a majority of whom have been here for more than a decade.

Trump’s plan is to totally seal the border — not really possible — and expel the undocumented. All of them.

The number of issues with this plan are myriad: logistical, legal, ethical, diplomatic, and financial. For the purposes of today’s post, let’s focus on the economic impact.

The direct costs of attempting to deport 11 million people are astronomical. It will take years to find, detain, process, and deport that many people to their home countries. Currently Immigration and Customs Enforcement (ICE) deports between 100,000 and 150,000 people a year with 20,000 agents and a budget of $420 million. Trump says he will declare a state of emergency and use the military to aid ICE.

It will take hiring hundreds of thousands more personnel, expanding the already overburdened immigration court system, and building dozens of facilities to detain the immigrants for months — maybe years. To put this in perspective, the total U.S. prison population is 1.9 million, which includes prisoners in every local, state, and federal facility.

The American Immigration Council estimates it will cost $88 billion a year for a decade. That is almost $900 billion dollars.

The indirect cost to the American economy could be much more significant. More than 8 million undocumented immigrants are in the U.S. workforce, a majority of them in farming, construction, and health care, industries most Americans choose not to work in.

At a time of low unemployment, the prospect of removing laborers from the workforce is a bad idea. To find people willing to take these jobs, wages will have to increase, which will in turn create inflation and suppress growth. The Peterson Institute estimates deporting 8.3 million people would push prices up 9.1% by the end of Trump’s second term.

We have already experienced a mini version of this phenomenon. The beginning of Trump’s first term saw a slowdown in immigration and then a hiatus during the pandemic. This caused a worker shortfall that added to price increases, supply issues, and wage increases that all led to high inflation.

Knowing all of this, you would think Trump or someone around him might suggest these policy shifts are not a wise political or economic strategy. But by surrounding himself with yes-men, and a few women, there is no one near the president to save him from himself.

Steady was created to be a guiding hand through the new political wilderness we found ourselves in four years ago. The posts would contain context and analysis, as well as highlight positive points in an effort to keep everyone anchored, steady. I believe this charge is more important than ever, though finding the positive will be increasingly challenging. I caution you to please pay attention, never lose hope, but know that the next few years are likely to test us all in ways we have never been tested before. Among the most important things we can do is stay informed and never stop working to hold the powerful accountable.

To support my team’s efforts to protect our democracy through the power of independent journalism, please consider joining as a paid subscriber. It keeps Steady sustainable and accessible for all. Thank you.

No matter how you subscribe, I thank you for reading.

Stay Steady,

Dan