US President Elect Trump will soon be returning to Washington triumphant, having won the election to become president through a majority in the electoral college and a plurality of the popular vote. The Republican Party also won a narrow majority in the House of Representatives and in the Senate. It was a clear victory for the Republican party and a brutal defeat for the Democrats.
Trump takes power at a time when the US economy is performing remarkably well, with a strong growth of GDP, low unemployment, and a falling inflation rate. The stock market is at record levels. Major progress in increasing clean energy is underway. The strength of great American research universities has never been greater.
There are of course problems, the income distribution shows a great unevenness in the wealth and income disparities distribution in the population. But there are signs that the increments in income will be more directed to lower income households. President Biden is handing over to the incoming president elect an economy in excellent condition.
Policy failure
Trump’s announced policies, if implemented, will increase inflation, maintain or temporarily increase economic growth, and make the income distribution that much more uneven. His policies to raise tariffs will be inflationary. The foreign producers will make little change in their selling price to the US importer who, to pay the duty, must either raise the price or reduce his profits.
Trump’s threat to impose on all Chinese imports into the US market a 60% tariff will result in other countries raising their export prices more than 10% as Chinese goods will be priced out of the American market. The American economy, already working at full capacity, is unable to produce replacements for the imports.
Overall, we can be confident of an increase in price level as there is a shift away from Chinese products and the imposition of a comprehensive 10% tariff on other imports. These are inflationary actions. His tariff changes might be adjusted, but any major program to raise tariffs will be inflationary.
Trump has threatened a 25% increase in tariffs for Mexico and Canada along with a 10% increase for Chinese goods. This additional threat demands better border control to keep immigrants out of the US and to reduce the flow of the drug fentanyl, a dangerous drug that is responsible for many deaths in the country. The impact of these threats and the response of Mexico and Canada remain to develop. These tariffs, plus the other ones discussed above, will not be accepted passively but will face increased tariffs or restrictions on American exports, reducing demand for American goods.
The drug problem arises from Americans' demand, originating from the despair and failure of the American society to provide a fair path to a meaningful life. It is one drug or another. Trump will not solve the drug problem.
Trump has also announced he would reduce taxes; this is also inflationary although he is threatening major reductions in US government expenditures that would be anti-inflationary. The net impact is likely to raise economic growth but with the economy at full capacity this will be inflationary.
What will happen is hard to forecast. It is very unlikely that significant reduction of expenditures will be achieved in transfers of goods and services to poor households. Trump is unlikely to reduce defense expenditures, rather there is widespread agreement that these need to be increased. The changes in taxes will largely benefit high income households.
Immigration nation
Trump’s policies include a massive deportation program of illegal immigrants. He almost certainly will carry out a major program that, over four years, will result in deportation of several millions, while a few million will leave voluntarily. Such a step is cruel and unnecessary.
While there is widespread agreement in the United States that new illegal immigrants should be prevented from entering, the immigrants that have been resident for years should be legally integrated into American society.
To deport people who have little connection with their country of origin, are members of American society with children and spouses who are often American citizens, is an act of desperate cruelty. It rises to the level of destruction of human beings that equals, in my estimation, the holocaust.
This deportation will have a strong impact reducing the labour force in agriculture, food processing, the service industry, and construction. All these sectors are likely to experience price increases, as wages rise or the volume of services decline. The result will be higher food prices, higher costs in the hospitality industry, and higher construction costs.
Altogether there is very likely to be an increase in the price level. This will lead to interest rates remaining higher than expected as the monetary authorities struggle to control the price increases. The initial reaction to the Trump presidency will be a strong increase in the stock market as investors are very keen to have Trump in power. However, by the second year the inflation will be substantial, and interest rates will rise. The stock market will then begin a major decline.
The TikTok question
Trump seems to be promoting Bitcoin and TikTok. This is remarkable. Trump’s support of Bitcoin promises to raise serious problems in managing the money supply; its promoters are trying to lower regulatory actions and have seduced Trump into going along with reduced regulations governing investment in bitcoins. It is a dangerous business, perhaps able to collapse the American financial system and hence the world.
On TikTok, I agree with Trump. Here is a program that brings great joy to hundreds of millions of people. The insane belief that listening to this social networking platform is sending information to Chinese intelligence or that the Chinese are corrupting the minds or American youth is comical. If this is the way US government officials concerned with national security analyze problems, one should be genuinely worried.
True motives
Perhaps Trump will try to undermine medical insurance, particularly for the poor. One does not know, although among the many statements made during the campaign many support this concern. Perhaps he will even undermine the social security program in the United States.
Trump’s intention is to increase the production of oil and gas, downplaying the expansion of clean energy. This folly will delay the time to reach net zero emissions. To achieve this he will have to subsidize gas and oil production to enable them to compete with clean energies such as solar or wind that are cheaper to produce.
His economic policies are dangerous and will bring great damage to the American economy and to the workers and their families. It is highly likely that we return to an inflation in the range of 6-7%, resulting in sharp rises in interest rates but this time a growth of unemployment. The median household will find their income declining while the top 5% will find themselves enriched. Transfers to the poor households will be sharply reduced. American households will shift from an excellent position, that they do not recognize, to a humbled life that they will soon experience bemoaning every day. Trump’s presidency will harm most Americans and, so far, as one can tell, further enrich the already sufficiently well off.
A matter of administration
Fundamental to a modern industrial society is the concept of the administrative state. This idea reflects the complexity of law and administration in our world. Parliaments and congresses can pass laws which indicate objectives and purposes. But such laws can never be sufficiently detailed to enable a government organization to simply implement them. The authorities must interpret the law in the light of the circumstances and issue a finding. The body of such laws, findings, and associated court cases comprise administrative law.
In the United States, administrative law was shaped by the so-called “Chevron deference” -- this principle set out by the US Supreme Court in 1984 established that the courts should generally accept the findings of the administrative organization if it was reasonable (Chevron 1984). This rule was overturned by the Supreme Court in 2024 (Loper Bright 2024). The impact is to open all findings of administrative law to the interpretation of the court. This change will enable the Trump administration to challenge many of the regulatory findings of the past 40 years, perhaps even close part of regulatory organizations. This seems to be the approach Musk will use to reduce government expenditures and decrease manpower.
The governance of the United States is at great risk from the likely actions of a president with very foolish views about economics, who has little interest or understanding of the problems facing ordinary Americans, and, through his behaviour, has shown himself to be selfish with no genuine sympathy for others. He has surrounded himself with wealthy men or men of dreadful characteristics, whose interests are against those of ordinary Americans, while Trump himself is a racist, a thief, and a pathological liar who despises women. It is hard to exaggerate the extent to which he violates the standards that good men and women live by.
The next two years will be very difficult in the United States, but the 2026 Congressional elections will begin to shift power away from those sponsoring these dreadful policies. In 2028 the wrath of the American people may well destroy the Republican party.
Forrest Cookson is Research Advisor to the Centre for Research and Development. In Bangladesh, he led the central bank component of the Financial Sector Reforms; was the Team Leader of the study of Northwest Area Development of Bangladesh; and served as the Statistical Advisor of the Legal and Judicial Capacity Building Project.
