inflation

Donald Trump may have won the presidency partly because voters were fed up with inflation. But if he enacts many of the policies he proposed on the campaign trail, voters may see prices continue to rise, according to economists, analysts, and business owners.

“There’s a lot of inflationary pressure in his promises,” says Simon Johnson, one of the 2024 winners of the Nobel Prize in Economics and a professor at MIT’s Sloan School of Business. 

Trump has said he would enact tariffs of 60% on goods from China and tariffs of at least 10% on all imports into the U.S. The cost of those tariffs will be paid by consumers buying the imported goods. The President-elect said he would oversee the biggest mass deportation of undocumented people in U.S. history, which could lead to labor shortages in industries like agriculture. He’s also pledging more tax cuts, which could boost consumption, setting off more inflation. 

Put together, economists say his proposals could drive up the costs of apparel, toys, appliances, and food. Trump’s own allies have sometimes acknowledged as much in the lead-up to the election; Elon Musk, for example, warned of “temporary hardship” for ordinary Americans as Trump enacts his plans, including government spending cuts. 

The cost of tariffs

Trump has consistently advocated for imposing tariffs on imported goods in an effort to keep manufacturing in the U.S. The amounts he’s proposed have been as high as 60% on goods from China, 25% on goods from Mexico, and 10%-20% on goods from everywhere else.

While Trump has claimed that foreign countries pay these tariffs, in reality, the importer pays them, absorbs what they can, and passes the rest on to the consumer. The Budget Lab at Yale has estimated that the Trump tariffs would initially drive up consumer prices by up to 5.1%.

If consumers pull back on spending as a result, that will create challenges for U.S. companies. “It’s going to raise our costs of the goods we sell, which has a huge impact on our ability to be profitable,” says Lanny Smith, the founder of Actively Black, a Black-owned athleisure wear company. Smith has tried to move production out of China to sidestep the brunt of Trump’s proposed tariffs, but hasn’t been able to find quality suppliers elsewhere. Even U.S. factories import fabrics from Asia, making them subject to the tariffs as well. 

Smith dreads raising prices on an inflation-weary public. “The consumer is going to be mad at us,” he says. “They don’t understand that if we don’t raise our prices, we won’t be able to survive.”

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Apparel and footwear could see big price increases if tariffs are imposed, says Steve Lamar, president and CEO of the American Apparel and Footwear Association. Unless you’re in the military, about 98% of everything in your closet is imported, he says. If companies decide not to raise their prices, they’ll practice a kind of clothes “shrinkflation”—for example, putting fewer features on a shirt but selling it for the price of a fancier shirt.

It’s not just clothes that will see prices increase if the tariffs are implemented. Many consumer electronics are made in China. They would be affected by Trump’s proposed blanket 60% tariff—and their operations are so complex that it could be very difficult for them to move manufacturing away from their current locations. Toys and sporting goods could also see big cost increases. The stock prices of companies like Wayfair, Five Below, and Dollar Tree have fallen since Trump’s victory because those companies import many goods from China. Other apparel companies who import a lot of their goods from China include Five Below, Skechers, Crocs, and American Eagle, according to a research report from Bank of America. 

One thing many people don’t understand about tariffs is that they tend to drive up the cost of U.S.-made goods too, says Mary Lovely, a senior fellow at the Peterson Institute for International Economics. That’s because the makers of the U.S. goods have less competition from overseas, and more demand from consumers looking for the lowest price. One 2019 study found that the price of domestic washing machines and dryers went up after Trump’s tariffs on imported washing machines. “American consumers are very likely in for some sticker shock,” Lovely says.

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Dan Digre’s company MISCO has made speakers in Minnesota for decades—his father started the business in 1949. He’s betting on making products in America, but Trump’s proposed tariffs could make it harder for him, he says. Digre imports some parts from China to run his business, and the first Trump Administration enacted a tariff of 25% on those parts, which put him at a competitive disadvantage since the tariff on imported speakers was only 7%. A 60% tariff would make Digre reconsider whether he could still build speakers in the U.S.. If he built the speaker in Vietnam, for instance, he wouldn’t face a tariff. 

“We’re disincentivizing companies like ours to continue to make things in America if we’re punished for getting the parts we need in a global market,” he says. 

Digre doesn’t see why the country, which has just suffered through years of inflation, would want to implement a tariff, which is basically the same as adding a tax on to the beginning of his production cycle. “That tax cost now gets passed to everybody,” he says. 

Mass deportations

Trump has pledged to carry out the largest mass deportation in American history and end Temporary Protected Status for certain migrants who have been cleared to work in the country. Both of those policies could have big impacts on what Americans pay for their food. 

It’s not just farm workers who would be affected, though roughly half of all farm workers are undocumented, says David Ortega, a food economist and professor at Michigan State University. There are hundreds of thousands of undocumented workers in restaurants, food production, and the grocery sector, Ortega says. Replacing them would drive up labor costs, ultimately leading to higher food prices. “This could have far-reaching impacts on our food system,” he says. 

Ironically, losing big swaths of the undocumented workforce would mean that the U.S. could have to rely more on imported food, which could be subject to the tariffs Trump wants to impose on foreign goods.

Fiscal and monetary policy

Johnson, the Nobel prize winner at MIT, thinks Trump’s plan for tax cuts will also create inflationary pressure. Tax cuts could free up more money for consumer spending, leading to another cycle when too much money is chasing too few goods in the economy. 

Trump may also try to bully the Federal Reserve into cutting interest rates. The Fed, which operates autonomously, raises rates to cool the economy and lowers them to help boost it. Trump has said he thinks the President should have a say in how rates are set. In his first term, he pressured the Fed to cut interest rates. 

Trump does not have legal authority to fire Jerome Powell, the chair of the Fed, and Powell has signaled that he will dig in and continue to operate independently if Trump tries to apply pressure. But Powell’s term ends in 2026, at which time Trump could appoint a Fed chair more sympathetic to his take on monetary policy.

There is, Johnson says, one upside as Trump promises big changes in the U.S. economy. The more unstable the world appears, the more investors put their money into safe international assets. That’s good for the U.S. dollar, because it pushes down long-term interest rates, making it cheaper for businesses, people, and the U.S. government to borrow money. 

“He has an incentive to threaten chaos,” Johnson says, “since that will lower his borrowing costs.”