Presidential candidate Donald Trump's proposal to replace income taxes with tariffs has raised concerns among economists about the potential for stagflation. Former President Donald Trump emphasized the importance of regulations and taxes in driving economic growth during an episode of the All-In podcast [30ef0a0c]. He highlighted that he gave the biggest tax cut in the history of the United States and believes that his tax cuts and regulatory reforms were crucial in fostering a strong economy and job creation during his tenure. Trump also addressed the challenges faced by businesses under the current Biden administration and discussed other economic issues such as the rising crime rate in Democrat-run states, global de-dollarization, and his plans to impose high tariffs on China and other countries to counter overproduction by Chinese EV manufacturers [30ef0a0c].
During his first term in office, Trump's policies led to a staggering $8.4 trillion increase in America's debt. Economists argue that replacing income taxes with tariffs would raise prices for American consumers and harm the middle class. The trade war resulting from the tariffs could cause a collapse in supply and value chains, leading to higher prices and stagnant production. Stagflation, characterized by high inflation and stagnant economic growth, would increase poverty rates and social tensions in the United States [f1c79641] [a35a195d] [2b9253db].
Major financial firms, including Morgan Stanley, are preparing for economic conditions that could lead to stagflation if Donald Trump wins the election. These firms are buying inflation hedges in anticipation of slower growth and faster inflation under a Trump presidency. Trump's tariffs and immigration policies could harm the economy by increasing the cost of doing business and creating labor shortages. This could lead to negative GDP growth, a rise in unemployment, and a potential crisis. The national debt, annual debt payments, and the impact of high inflation and slower economic growth on the economy are also concerns. Overall, Trump's policies are likely to lead to stagflation, which would be detrimental to the economy [f3758c74] [f1c79641] [a35a195d] [2b9253db].
Jan Hatzius, a Goldman Sachs economist, warns that a US-EU trade war could elevate global trade policy uncertainty to 2018-2019 levels. He estimates that a trade war would increase US inflation by 1.1 points, reducing GDP by 1.0% in Europe and 0.5% in the US. Hatzius highlights that Trump's proposed tariffs are 'large by postwar standards' and could raise the average US tariff rate by 16 percentage points to nearly 20%, which would be the 'highest in the postwar period'. The trade war could negatively impact real personal income, consumption, and business investment. Hatzius suggests that a trade war is not necessarily a reason for the Fed to hike rates, but it might be a reason to delay cuts that might otherwise occur more quickly. He emphasizes the uncertainty surrounding potential trade policies in a second Trump administration and the possibility of a more intense trade war with China [06b76bec].
In contrast, the National Economic and Development Authority (NEDA) in the Philippines has proposed lowering tariffs on rice and pork imports as a measure to reduce inflation and stimulate economic growth. However, this move could result in lower farmgate prices for local rice and potentially lead to the abandonment of rice farming. The article also discusses the negative impact of agrarian reform on agriculture and emphasizes the need to make the rice sector more efficient. The current agriculture system in the Philippines is described as a curse, contributing to high food prices, poor rural productivity, and rural poverty [f1c79641].
If Donald J. Trump were to win the race for the White House in 2024, he would be entering office at a time when prices have risen roughly 20 percent. This is a different economic backdrop for the policies of tariffs and tax cuts that Trump has put at the center of his campaign. Inflation has been a global phenomenon since the onset of the coronavirus pandemic in 2020, and supply chain problems, shifting consumer spending patterns, and other factors have contributed to the recent surge in prices. Businesses and consumers are more accustomed to adjusting prices, and the Federal Reserve has raised interest rates to 5.3 percent to control inflation. Trump's proposed tax cuts, mass deportations, and increased tariffs could be riskier or more costly in the current economic environment, especially with the economy running at full speed and low unemployment [5ddb08da].