'Worst' 28% Price Increase in 2028, 9.7% GDP Decline
"Ultimately, the US Pays the Highest Cost"
The U.S. think tank Peterson Institute for International Economics (PIIE) projected on the 26th (local time) that former President Trump's economic pledges could reduce economic growth and employment while causing inflation to rebound, potentially having a negative impact on the U.S. economy even by 2040.
PIIE's senior researchers Warwick McKibbin and Marcus Noland, along with former researcher Megan Hogan, analyzed the effects of three economic pledges: deporting illegal immigrants, imposing a 60% tariff on China and a universal 10% tariff on other countries, and weakening the independence of the Federal Reserve (Fed). They released a report with these findings. Using a baseline assumption of annual growth rates of 1.9% for gross domestic product (GDP), 1.5% for employment, and 1.9% for inflation, they compared scenarios with and without the implementation of former President Trump's pledges.
According to the report, in a scenario where 1.3 million illegal immigrant workers are deported and countries like China do not impose retaliatory tariffs, employment is predicted to decrease by 2.7% compared to the baseline scenario by 2028. Inflation is expected to rise by 6% by 2026, and consumer prices are projected to increase by 20% by 2028. GDP is forecasted to decline by 2.8%.
The worst-case scenario shows even more severe outcomes. This involves deporting 8.3 million illegal immigrant workers and other countries imposing retaliatory tariffs. Employment would fall by 9% by 2028, and inflation would surge by 9.3% by 2026. Consumer prices could rise by up to 28% by 2028, while GDP is expected to drop by 9.7%.
The report expressed particular concern about the loss of Fed independence. The researchers stated, "If the Fed loses its independence, permanently higher inflation will occur, causing prices to continue rising across the entire U.S. economy," projecting that prices could increase by up to 41% across the economy by 2040. They also predicted that from 2026, capital would flow out of the U.S. into other countries, leading to GDP growth in China, Canada, Germany, Japan, Mexico, and others.
Former President Trump sparked controversy over Fed independence last month by saying, "I think the president should at least have a say at the Fed." However, he later clarified in an interview with Bloomberg News that having a say does not mean making decisions.
The effects of deporting illegal immigrants were also viewed negatively. In both scenarios, U.S. employment and GDP were adversely affected through 2040. Researcher McKibbin told CNN, "Mass deportations would be a shock to the labor supply similar to COVID-19," noting that about 16% of agricultural workers are illegal immigrants, which would cause food prices to rise. He added, "If they do not return, there will be a permanent loss in labor supply."
He also anticipated significant damage to the agriculture and manufacturing sectors, which are heavily dependent on labor supply and trade.
The researchers emphasized, "This study is not partisan. Our concern is with the policies, not the candidate," adding, "Former President Trump said he would make foreigners pay the price, but our analysis shows that these policies would ultimately make Americans pay the highest cost."
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