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President elect Donald Trump promised an aggressive slate of policies during his campaign for a second term that he said would strengthen the US economy. To me, the most beautiful word in the dictionary is terrified. No tax on tips, I will end inflation, prices will start to come down. Now that Trump has won the election, the question has shifted. Will these promises play out the way he sold them to the American people? And how could these policies evolve as he tries to put them into practice.
As the old saying goes, politicians campaign in poetry, but govern in prose.
Tom Orlack is the chief economist for Bloomberg Economics, and as the country prepares for Trump to take office, Tom and his team have been looking closely at some of his key economic talking points. Wanted to understand how Trump's policy proposals could transform the country now that his second term isn't a hypothetical but a reality that's just two
months away. Today on the show, we do the math on the true cost of Trump's economic agenda, what it could mean for inflation, and how soon US consumers and companies can expect to feel the impact. This is the big take from Bloomberg News. I'm Sarah Holder. Well, Tom, thank you so much for being here.
Great to be here, Sarah.
Tom. Inflation and prices and economic concerns were really front and center in this US presidential election. How should the American people and the world be thinking about what a Trump presidency will actually mean for the future of the US economy.
So let's be clear, Sarah, Past US administrations have not covered themselves in glory when it comes to economic policy and making the economy work for the American middle class. Let's think about inflation under the Biden administration. Now, they were dealt a tough hand with the pandemic lockdowns and reopening. Still inflation running close to ten percent. That's really high and had a really significant negative impact on the pocketbooks
of US households. So the Trump team was I think completely right in identifying failures of past economic policy as a big concern for voters and a big opportunity for them. The big question is, well, do they have the right policies to solve those problems?
How does your team do the math to calculate the economic impact of a presidency.
Well, it's pretty tough, Sarah, and it's especially tough with the Trump administration for a couple of reasons. First, in general, incoming administrations talk about small tweaks to policy. We'll do a bit more over here, a bit less over there. But Trump's talking about seismic shifts in policy, the highest tariffs, for example, that we've seen since the start of the
twentieth century. The second complexity, of course, is trying to disentangle what's the kind of campaign trail, red meat commitment versus what could plausibly be delivered in office.
Well, let's talk about those promises versus that.
Reality, Sarah. I have to say I'm a tiny bit disappointed by the illiterative failure in your framing of the question. I mean, we could have gone with rhetoric versus reality, promises versus plausibility. Trump is going to be inheriting an economy where inflation has already come way down and is basically trending back to targets. Now, if we think about Trump's actual policy proposals, we think about tariffs, which are
going to make imports more expensive. If we think about tax cuts, which are going to reduce growth and so make labor markets stronger and so allow workers to bid up wages. Well, they're not hyperinflationary. We're not talking about price changes going back to ten percent like they did after COVID reopening. But they're certainly more inflationary than they are disinflationary.
Bloomberg Economics focused on five key economic pillars that could look different under Trump. Taxes, tariffs, immigration regulation, and the federal reserve. Let's dive in on taxes for a second. Trump's tax cuts from his first term are expiring in twenty twenty five. Will he renew them? Do we expect him to add additional tax cuts? So?
Trump has made a number of promises on taxes on the campaign trail. He's talked about extending the tax cuts which he introduced in his first term. He's talked about exempting tips from tex taxes. He's talked about exempting Social Security from taxes. He's talked about a big cut in the corporate tax rate.
Tom's team found that Trump's proposed tax cuts would cost the US trillions of dollars in revenue. It would drive the US debt up to roughly one hundred and fifty percent of GDP by twenty thirty four.
Now with the Senate, and we don't know yet but quite likely with the House as well. There's quite a lot he could do on taxes. At the same time, markets do not like unfunded tax giveaways, So we don't think Trump is going to face much constraint from Congress. But we do think that Trump is going to face
quite a lot of constraints from the markets. If he attempts trillions of dollars of unfunded tax cuts, then the markets are going to say no, and they're going to bid up treasury yields, and that's going to be a
constraint on his freedom of maneuver. So our bet is that we get some tax cuts, we get an extension of those tax cuts from his first term, we don't get the more ambitious proposals that he's put on the table, and what that's going to mean is slightly stronger growth, slightly higher inflation, and a more rapid increase in the US debt.
So one of Trump's other bold positions has been on tariffs. He's proposed levying major tariffs on China and possibly on Europe. What do we know about the economic impact such a large tariff increase could have on the US economy. What is your team found.
So on the campaign trail, Trump talked about sixty percent tariffs on China and twenty percent tariffs on the rest of the world, and that would be an absolutely enormous shock to the global trade system and the US economy. It would take US tariffs back to a level last scene after the Smoot Hawley Act in the early nineteen thirties, which most economists believe significantly deepened the Great Depression. Now that, of course raises the question, well, would he really do it?
My instinct is probably not for a couple of reasons. First, Trump is a transactional guy, right, and so I think he views these numbers as a threat, which starts a negotiation. And his expectation is that other countries would come back with concessions. There'd be a negotiation, and then enables him to extract some concessions from Beijing, some concessions from Brussels, some concessions from trade partners in the rest of the world.
We'd have some higher tariffs. He needs those to offset the tax revenue losses he would get when he cuts taxes. But we wouldn't go to that sixty percent twenty percent number. Secondly, the evidence of his first term is that he does this in a kind of smart way right, or at least a way which is intended to minimize the cost
on US consumers US businesses. So tariffs in his first term exempted smartphones and tablets, for example, and the kind of things which would have really hit Apple and other US economic champions.
What would Trump tariffs mean for the US's GDP?
For US GDP for US growth, it would be a negative. The US would be exporting less. That means less output, less jobs, less income. It would also mean a very significant negative impact on some market champions, companies like Apple, for example, which have supply chains which stretch across the United States and China. What would happen to those supply chains if sixty percent tariffs were introduced on all US China trade. Well, I'm not an Apple expert, but I
can tell you nothing good. And for inflation, it would mean pressure for prices to write because if you put a tariff on imports, well, that means consumers have to pay more for everything from Nike trainers to Apple smartphones.
Coming up, how Trump's anti immigration agenda could slow economic growth and by the Fed's job of controlling inflation could get even harder under a second Trump administration. Let's talk about immigration for a moment. Trump has really threatened to crack down on immigration into the US and to increase deportations. What kind of impact would that have on the labor market and on the broader economy.
Let's think about the growth piece of it, and then let's think about the inflation piece of it. So where does economic output come from. Well, it's workers and capital, right, workers and factories, workers and offices. So if you take workers out, if you deport millions of people, well your workfverce is smaller and so your output is smaller. So the effect of deportations on economic growth pretty categorically negative.
Just how negative? Well, if Trump deported all unauthorized immigrants who entered the US since twenty twenty, Bloomberg Economics estimates that US GDP would shrink by more than three percent by twenty twenty eight.
The impact on inflation, well, that's a bit more complicated if you think about specific sectors of the economy, specific states, for example, construction or retail where there's a lot of unauthorized migrant workers. Think about states like Texas where there's a lot of unauthorized immigrants. Well, if you kick a bunch of those workers out of the country, you've got
less workers. So the workers who remain have got more bargaining power, they can demand more wagesh Is you've got inflationary pressure in some specific sectors in some specific states. Would it be inflationary for the economy as a whole. Well, that's a little bit where the complexity comes in. Because everybody is a producer. They contribute to supply and the consumer contributing to demand. So if you take a person out of the economy, you're losing some supply, but you're
also losing some demand. And what our modeling suggests is that the loss of demand is a bit bigger. And so for the economy as a whole, when you deport a bunch of people, the impact is not more inflation, it's actually less inflation.
Tom, We've been talking a lot about rhetoric versus reality. How does that play into Trump's immigration proposals. Is there a world where he sees the economic reality of implementing these and dials them back.
I mean, we've not talked about this humanitarian cost of this, right, I mean the humanitarian cost is a big part of the picture, right tracking down unauthorized immigrants, herding them into detention centers. But leaving that aside, the logistics of a mass deportation policy are very complicated and very expensive. The economic impact, certainly for businesses that are working in construction, certainly for businesses that are working in retail or catering, well,
they'd also be pretty significant. So I think, as with tariffs, we are going to see a campaign in poetry governing prose dynamic where certainly Trump's border policies are more severe than we've seen under the Biden administration, but delivery on some of his campaign pledges to have the biggest deportations in US history, well, we'll have to see if that's plausible or not.
Well, Tom, let's talk about de regulation. The Biden administration made anti trust regulation a big part of its economic agenda. How does your team expect Trump to approach mergers and anti trust concerns? How might that impact the cost of consumer goods?
Particularly with Lena Khan leading the charge, the Biden administration has taken a pretty aggressive stance on anti trust issues. Now for the Trump incoming Trump administration, would that stay the same. Well, I see a couple of conflicting impulses. On the one hand, the Republicans are pretty hostile to some of the big tech companies in California. They see them as bastions of kind of democratic politics. They see them as companies that are kind of tilting the public
debate in a way which is unfavorable to them. On the other hand, the instinct of Trump, the instinct of the Republican Party is to be pro business, anti regulation. So how's that going to net out? Well, I think some of the big tech companies are going to see pressure fractice relations with the Trump administration. But I think that antitrust crusade that we've seen from le Ni Khan under the Biden administration, I suspect that that's not going to be a big feature of Trump policy.
Well, it's up to the FED to deal with how these policies impact the economy and in particular, impact inflation. How does your team expect the FED to react to these Trump policies as it sets interest rates and tries to do its job, which is to keep inflation in check.
That's a great question, Sarah. I'd say for the FED, we think that the Trump win introduces a sort of head spinning array of conflicting dynamics. Right now, we've got long term borrowing costs, the ten year treasury rate sharply higher than it was a few weeks ago. We've got the US dollar sharply stronger than it was a few weeks ago. What that means is financial conditions have tightened, and that adds downward pressure on growth, and so it
adds pressure for the FED to cut more. On the other hand, as we've discussed tariff policy from Trump, tax policy from Trump, well that's probably going to be inflationary. So the FED looking into the future anticipating these more inflationary policies, Well, that means pressure to cut less. And then the last piece of the picture, Well, the FED
is independent and they jealously guard their independence. Past Republican presidents, apart from Trump, Democrat presidents have been respectful of FED independence.
Trump is not respectful of FED independence. He's unfiltered in sharing his views on what the FED should do, and that means there's an additional dynamic for the FED, which is the pressure to guard their independence and demonstrate that they are immune from political pressure, which at the margin probably means and instinct to cut less for the December meeting. Don't think any of this really matters that much. Twenty five basis point cut is baked in looking into twenty
twenty five. Our pre election forecast was another one hundred basis points of cuts. But with all of these conflicting dynamics, with conditions changing quickly, that forecast is subject to some pretty significant uncertainty.
And how soon can we expect to fuel the ripple effects of Trump's policies through the American economy? How much are we feeling now even before inauguration day? How much might we feel the first weeks and months?
So markets move really fast. That Trump trade over the summer already started pricing in the possibility of a Trump win, with the market's betting that would mean more tariffs, less taxes, more debts, adding up to higher interest rates and a stronger dollar. When Trump won, that Trump trade got on the day, impetus rates moved higher, the dollar moved higher. That's already having a big impact on the US economy. Higher rates mean higher mortgages, challenge for the housing market.
When are the policies going to start rolling out well? Drafting policies is a time consuming process. You need a leadership team in place, you need an analytic process to design the policy, you need a drafting process to write the policies, alleged process to approve the policies. That's not going to be something that we see probably until somewhere into twenty twenty five.
Well, thanks so much, Tom for sharing this with us.
Thanks for having me, Sarah.
Thanks for listening to The Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press with support from David Fox. It was edited by Aaron Edwards and Greg White. It was mixed by Alex Sugia and fact checked by Adrianna Ti. Naomi Shavin, who also edited this episode, is our senior producer. Elizabeth Ponso is our senior editor. Nicole Beemsterbor is our executive producer. Sage Bauman is Bloomberg's head of Podcasts. Please follow and review
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