Donald Trump and his impact on the US economy

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Why would a Trump win affect his most loyal voters?

All the complaining about the candidates' shortcomings is useless, because according to all available data, Donald Trump is the most likely candidate for the upcoming US elections. He was already leading in important polls before Friday night's disastrous TV debate.And since then he's been doing it more: For two-thirds of registered American voters, Trump was the clear winner of the debate, with only one-third left with Biden. If the Democrats don't force their president to surrender, Trump will win this election, and Joe Biden will be his most important supporter.

It is important that we address Trump's ideas and plans now.

Admittedly, he has not yet presented a real campaign program, but he has hinted here and there, again yesterday, at what he would implement if he were to take over the White House again: He promises a tougher immigration policy, along with more aid. Deportation of foreigners already living in the United States who do not have legal residency. In addition, a massive expansion of import tariffs – for example, a 10% duty on almost all imported goods, and much higher on Chinese goods. In return, he wants to cut taxes, would like to eliminate the income tax entirely, and would like to cut corporate taxes again.

Impact on the economy

What does it cost and how does he plan to finance it given the already huge budget deficit? More than six percent of the national economic product (GDP), of course Trump doesn't say. But he didn't care about the country's finances even in his first term (like his successor, by the way).

A study by the American rating agency Moody's, published in the United States a few days ago, is very interesting. In 34 pages, experts analyze the effects of the election promises made by the two opponents on the American economy, and at the same time give them certain probabilities of their occurrence (You can find the study here. (The download is free, you just have to register. But it’s worth the read.) Economists — even before the televised debate — considered a narrow Biden victory and a Trump-era Republican victory, including in both houses of Congress, to be equally likely.

So what would be the economic consequences of a Trump victory? They would be very bleak for large parts of the U.S. economy and the rest of the world: With more tariffs on imports, Moody’s forecasts a sharp rise in U.S. inflation next year—from about 3 percent today to 3.5-4 percent. Closing the U.S. southern border and increasing deportations would dramatically worsen labor shortages in many sectors of the U.S. economy and put further pressure on wages—which would also lead to inflation.

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A renewed surge in inflation would weigh on U.S. consumption, which is crucial to the country’s overall economic health. Moody’s analysts expect the U.S. economy to slip into a mild recession as early as the second half of 2025—a significant decline given the current growth rate of 2 to 3 percent this year. On the other hand, the tax relief would also stimulate the economy—but if the labor shortage deepens, it would only increase inflation.

Unexpected Losers With Donald Trump

In this case, the Fed’s response is far from certain. Fed Chairman Jerome Powell’s contract runs through 2026, and Donald Trump, who once appointed him, was not happy with him during his first term. Trump himself favors loose monetary policy, but given the inflationary potential of Trump’s tariffs and immigration policies, the Fed will be forced to raise interest rates. If that happens, it will be another setback for the economy.

The losers in such a policy are Trump’s most loyal voters: all those who have little or nothing today and hope that Trump will at least restore them to a little more prosperity and the glorious prospects of old America. But in reality, with President Trump, they will have even less than they have today.

Trump's critics in the US are already waving their hands and arguing that Biden must finally campaign with exactly these expectations and issues.But here is another weakness of the current president: it is difficult for Biden to attack Trump in these areas because he is following a similar protectionist path in trade policy, especially towards China.

Of course, Moody’s experts predict that not everyone will lose out on Trump’s policies. Corporations and businesses that might have expected more tax relief under his presidency are likely to win. Those losses in sales are likely to be offset by weaker consumption. And everyone who invested in those companies — their shareholders — is likely to win, too. Which may explain why so many corporate leaders now support Trump as president.

The irony is that with the current economic policy trajectory of the Biden presidency, the economic outlook for the country as a whole (and perhaps for the global economy as well) will be consistently better, according to Moody’s. But for that trajectory to remain a possibility, the current president, for all his virtues, will have to quickly say goodbye to the idea of ​​a second term in office.