What Would the Trump Economy Look Like?

When former President Donald Trump's second term begins in January, he will have to get to work on his campaign pledges. During his 2024 campaign, Trump promised to lower inflation and says he would fix the economy by cutting taxes, instituting import tariffs and more.

Here are some of the major proposals he made during the 2024 election, along with the opinions of economists and other experts on how those promises could play out.

Battle inflation

Trump has promised that his policies would lower inflation. However, the former president has been vague about exactly how they would do that.

The pandemic helped spark inflation that peaked at a growth rate of 9.1% in June 2022. Inflation has since slowed to a pace of 3.3%, according to the most recent consumer price index for May. However, prices do remain elevated, with food prices up about 26% since the start of 2020.

Trump has offered one specific promise when it comes to reducing costs for consumers: lowering gas prices. It’s worth noting that the price of gas is largely dictated by market forces outside of the president’s control. But oil production can impact supply, and Trump has said time and again that he wants to “drill, baby, drill” — in other words, increase U.S. oil production on federal lands.

During Trump’s term in office, he increased oil production from 8,846 barrels per day to 12,311 barrels per day, according to Energy Information Administration data. President Joe Biden, meanwhile, has increased U.S. oil production to a record high of 12,927 barrels per day.

What experts say: Even though Trump has detailed few plans for slowing the growth of consumer prices, his agenda could still have a big impact on inflation — but not the one he’s touting.

A group of 16 Nobel Prize-winning economists signed a letter saying that Trump’s economic proposals would “reignite” inflation and added that they were “deeply concerned” about the risks of a second Trump presidency, as first reported by Axios on June 25. The economists wrote, “The outcome of this election will have economic repercussions for years, and possibly decades, to come. We believe that a second Trump term would have a negative impact on the U.S.'s economic standing in the world and a destabilizing effect on the U.S.'s domestic economy.”

According to an analysis by economists at Moody’s Analytics, a research division of one of the world’s most prominent bond-rating agencies, Trump’s economic policies would lead to higher inflation at an estimated rate of 3.6% in 2025.

The report, released June 20, also projects that Trump’s policy proposals, if enacted, could trigger a recession by the middle of 2025. Moody’s projects weaker economic growth over the four-year term as a result of Trump’s policies as well. Of course, Trump would not be able to implement his full policy agenda next year unless his party also won control of both the House and Senate in November, a scenario with a 35% probability, according to the report.

Moody’s projects that two of the biggest factors contributing to inflation under Trump would be his across-the-board tariff increases and immigrant deportations (more on those proposals below).

Impose a 10% import tariff

Trump says he would impose a 10% tariff applied across all foreign imports on top of any existing tariffs. The revenue, he says, would offset proposed tax cuts. He has even proposed eliminating the federal income tax and replacing it with tariff revenue.

He has also called for a tariff of 60% or higher on Chinese imports. During his presidency, Trump leaned into tariffs — particularly on China — as one of his key foreign policy tools. Biden kept Trump’s tariffs in place when he took office.

But the effectiveness of the tariffs Trump imposed against China is, in an economic sense, difficult to sell: In December 2019, Bloomberg Economics estimated that Trump’s trade war with China during his first term cost the U.S. economy $316 billion.

What experts say: Tariffs are, functionally, taxes levied on importers. When importers are taxed, the price of goods tends to increase, and that cost falls on the American consumer. Economists and think tanks say Trump’s tariff proposals could exacerbate foreign trade hostilities, and one of the results would likely be tariffs on American exports. Experts say it could also fuel inflation as U.S. consumers bear the burden of higher costs.

An analysis by the Center for American Progress, a left-leaning think tank, says Trump’s tariff would result in a roughly $1,500 annual tax burden to the typical household. That estimate is similar to an analysis released in May by the Peterson Institute for International Economics (PIIE), a nonpartisan think tank that found the proposal would add a $1,700 annual tax burden to middle-income American households.

The authors of the PIIE analysis wrote, “In practice, no study of the Trump tariffs has found any evidence that U.S. tariffs result in lower prices for U.S. importers. On the contrary, study after study has shown that U.S. tariffs levied since 2017 have instead been fully ‘passed through’ to American buyers.”

In terms of the tariffs’ potential effectiveness in offsetting tax cuts, experts say it would be unlikely to fully replace the revenue lost from Trump’s proposed cuts to tax rates. In fact, it would increase the deficit, according to the American Enterprise Institute (AEI), a right-leaning think tank. A June 17 post by Alex Brill, a senior fellow at AEI said, “Simple math reveals this is infeasible from a budgetary perspective. Basic economics suggests that if the US imposed massive tariffs, imports would slump, deficits would soar, and a recession would be likely.”

A June 19 analysis by The Cato Institute, a libertarian think tank, said Trump’s tariff plans are not “a good way for governments to raise revenue” and are also “mathematically implausible even with radical spending cuts.”

When asked during a lengthy interview by Time on April 30 if he’s comfortable with tariffs raising prices and contributing to inflation, Trump said, “I don't believe it'll be inflation. I think it'll be lack of loss for our country.”

The reasoning behind Trump’s view on tariffs is that foreign producers, in a desperate attempt not to lose market share in the U.S., will lower their prices to offset the impact of the tariffs. That would, in theory, pay the tariff out of their profits, thereby avoiding a tax on American consumers.

But Trump’s previous tariffs haven’t worked out that way: A Federal Reserve study from October 2019 found that the positive impacts of tariffs are offset by both retaliatory tariffs on U.S. goods and the higher costs that American companies shoulder to import supplies. The study also found that the Trump-era tariffs also didn't boost U.S. manufacturing.

The Moody’s analysis projects that a tariff on nearly all imported goods would raise the costs to businesses, which would put downward pressure on growth and productivity. Those conditions would result in inflation and the American consumer will face higher prices, according to Moody's.

Expand tax cuts

Trump told the audience at the Black Conservative Federation’s gala in South Carolina on Feb. 27, “I will make the Trump tax cuts the largest tax cut in history.” Here are what some of his tax plans entail, according to the Tax Foundation, a nonpartisan policy think tank:

• Extend 2017 tax cuts permanently. Many of the tax cuts in Trump’s 2017 Tax Cuts and Jobs Act (TCJA) are expiring at the end of next year. Those include estate tax cuts and individual income tax cuts. 

• Replace personal income taxes with an “all tariff” policy. On June 13, Trump told CNBC he was considering a policy to get rid of the personal income taxes and replace them with import tariffs.

• Eliminate taxes on tipped income. During a campaign event in Nevada on June 9, Trump proposed doing away with taxes on income from tips. 

• Lower the corporate tax rate by one percentage point. On June 13, during a meeting with some of the nation’s leading chief executives, Trump said he planned to cut the corporate tax from its current 21% rate to 20%. In Trump’s first term, he slashed the rate from 35% to 21%.

What experts say:

• Extend 2017 tax cuts permanently. The Congressional Budget Office says extending the tax provisions in the TCJA would increase deficits by nearly $3.5 trillion from fiscal years 2023 to 2033. 

• Replacing personal income taxes with tariffs. Tariffs could not generate as much revenue as the personal income tax does, which would result in a deficit, according to a June 20 analysis by PIIE. The report says, “Tariffs are levied on imported goods, which totaled $3.1 trillion in 2023. The income tax is levied on incomes, which exceed $20 trillion; the U.S. government raises about $2 trillion in individual and corporate income taxes at present. It is literally impossible for tariffs to fully replace income taxes.”

• Eliminating taxes on tipped income. Eliminating taxes on tipped income is more complex than it seems, given how varied minimum wage laws are state-by-state. Ending the taxation of tips would require not only congressional  action, but also new legislation at the state level in any state that does not default to the federal government’s minimum wage rules. Like Trump’s other tax cuts, he intends to make up for lost revenue with tariffs, which could result in a higher cost to American households, which includes the workers the proposal seeks to benefit.  

• Lowering the corporate tax rate. The National Bureau of Economic Research, a nonpartisan, nonprofit research organization, finds that corporate tax cuts attract firms, which leads to an increase in employment and wages, as well as housing rents. But the NBER says that business owners tend to benefit most from tax cuts compared to workers even with the benefits of local economic growth. The Center on Budget and Policy Priorities, a progressive think tank, says the benefits of cuts made to corporate taxes in the TCJA aren’t passed onto workers.

Mass deportations of immigrants

At a South Carolina rally on Feb. 11, Trump promised, “On day one, I will terminate every open border of the Biden administration, and we will begin the largest domestic deportation operation in American history.”

A key focus of Trump’s campaign is a large-scale crackdown on immigration, including a proposal to round up and deport millions of unauthorized immigrants. He says he plans to do so by revamping various immigration laws and deploying National Guard troops and local police departments in addition to federal agents.

What experts say: Trump’s immigration plans are likely to face swift and strong legal opposition. The logistics of the proposal itself are hazy, although Trump says it would require the creation of camps to detain people. The financial ramifications are also unclear.

The report from Moody's Analytics emphasizes the “crucial” part immigrants play in the production of U.S. goods and the world food supply. The analysis says that if Trump’s immigration policies are enacted, the outflow of foreign immigrants could result in a tighter labor market and contribute to faster-rising labor costs, and therefore, prices.

The industry sectors that would bear the greatest burden include agriculture/forestry/fishing; construction; and leisure and hospitality.

Social Security and Medicare: an evolving view

In an interview with CNBC on March 11, Trump said that he was open to making cuts to Social Security and Medicare as a way to reduce the national debt. But after a quick rebuttal from the Biden campaign (“Not on my watch,” Biden posted on X), Trump’s campaign immediately walked back his comments. Trump has since vowed to protect the entitlement programs.

Over the years, Trump has been inconsistent in his messaging when it comes to entitlement programs. While campaigning in 2016, Trump pledged never to cut Social Security, Medicaid or Medicare, in a break from the GOP’s traditional agenda. However, during his first term in office, Trump proposed cuts to entitlement programs several times. The most recent was in 2020 when the former president proposed cuts to both programs as part of his 2021 budget.

What experts say: Social Security and Medicare are the largest federal government programs. Actuaries agree that the trust funds that help underpin both Social Security and Medicare will become insolvent in the 2030s unless funding is increased or other changes are made. If the trust funds run dry, the programs will subsist on annual payroll taxes, and recipients could see lower benefits.

The 2024 report of the Social Security and Medicare trustees released in May says Social Security’s trust fund will not be solvent as of 2035, while Medicare’s Hospital Insurance trust fund will be depleted in 2036.

Manufacturing tax credits

During a campaign speech in Savannah, Ga. on Sept. 24, former President Donald Trump proposed new incentives that he says would spur manufacturing job creation.

Trump promised to implement R&D tax credits, which would allow businesses to write off 100% of expenses in their first year, including the cost of machinery or equipment. It’s a complete reversal of his 2017 tax cuts that included a phase-out of R&D expenses in their first year. Currently, R&D costs must amortize over five years before a business can write-off the expenses.

Trump also said he would enact 100% tariffs (or even 200%) on cars imported from Mexico. Many major auto manufacturers have plants in Mexico including American automakers including Ford, General Motors and Tesla. Trump has already proposed placing a 10% across-the-board tariff on all foreign imports and a 60% tariff on China.

Capping credit card interest

During a campaign stop in New York on Sept. 18, former President Donald Trump proposed capping credit card interest rates at around 10%.

The average credit card interest rate is 21.51% as of May 2024, according to Federal Reserve data. The interest rate consumers get is based on a number of factors including credit scores and other financial information.

Trump’s proposal isn’t the first. In September 2023 Sen. Josh Hawley (R-Mo.) proposed an 18% interest rate cap on credit cards. And a 2021 bill cosponsored by Senate Democrats would provide consumers with the same 36% interest rate cap that service members are entitled to under the Military Lending Act. There are also 42 states plus the District of Columbia that cap interest rate fees for a $10,000 loan at a median cap of 27%.

Adding a cap to interest rates would require an act of Congress and would likely face legal scrutiny. Critics of interest rate caps on credit lending also argue that a cap would have negative effects for borrowers who wouldn’t qualify for credit cards with such a low APR.

A 2023 analysis of Illinois’ 36% interest rate cap on unsecured installment loans, which was instituted in 2021, found the rule decreased the number of loans for subprime borrowers by 38%. “Responses to a survey of small-dollar-credit borrowers in Illinois who lost credit access suggest the interest-rate cap worsened the financial well-being of many of these borrowers,” the researchers wrote.

On X, economist Peter Schiff asserted that capping interest rates would “destroy the entire industry” and result in millions of Americans losing their credit cards.

Economic proposals in the RNC platform

The RNC platform outlines several economic and personal-finance related proposals. However, keep in mind this is just an outline of ideas — there are few details on the feasibility of enacting certain plans.

“End inflation, and make America affordable again”

• Lift restrictions on “American Energy Production” to make the U.S. the “Number One Producer of Oil and Natural Gas in the World,” according to the platform proposal. The production would come from multiple sources, the proposal says, including nuclear. The RNC says it would “immediately slash inflation and power American homes, cars and factories with reliable, abundant, and affordable Energy.” 

• “Slashing wasteful Government spending and promoting Economic Growth.”

• Reinstate Trump’s Deregulation Policies and “end Democrats’ regulatory onslaught” on low-and-middle income households.

• Secure the border, “deport Illegal Aliens” and reverse Democrats’ border policies. 

• “End global chaos and restore Peace Through Strength”. It’s unclear what that would entail, but the RNC claims it would reduce geopolitical risk and lower commodity prices. 

“Build the greatest economy in history”

• Cut regulations “that stifle Jobs, Freedom, Innovation and make everything more expensive.” 

• Make permanent the 2017 Tax Cuts and Jobs Act and eliminate taxes on tips for restaurant and hospitality workers. See above for a breakdown of those proposals.  

• Make trade deals by “standing up to countries that cheat and prioritizing American producers over foreign outsources.” 

• Increase energy production to ensure reliable and abundant low-cost energy.

• “Champion innovation” by eliminating regulations related to cryptocurrency; support AI Development “rooted in Free Speech and Human Flourishing”; and send astronauts back to the moon “and onward to Mars” while creating partnerships within the commercial space sector in order to “revolutionize our ability to access, live in and develop assets in Space.”  

“Bring back the American dream and make it affordable again for families, young people and everyone”

• Housing affordability: Reduce mortgage rates by “slashing Inflation”; open limited portions of federal lands for new home construction; promise homeownership through tax incentives and support for first-time home buyers; along with cutting “unnecessary Regulations that raise housing costs.”

• Accessible higher education: Reduce the cost of higher education by creating additional alternatives to a traditional four-year college degree that are “drastically more affordable.” 

• Affordable health care: Protect Medicare and ensure seniors receive care without high costs; “increase Transparency, promote Choice and Competition” along with expanding access to “new” affordable health care and prescription drug options. 

• Lower everyday costs: Reduce regulations, lower energy costs and promote economic policies that drive down costs of living, as well as goods and services.