In the 2024 U.S. presidential election, 81% of surveyed registered voters rated the economy as very important to their vote, ranking it above other issues like immigration, healthcare, and foreign policy. Vice-president Kamala Harris and President-elect Donald Trump sought to address concerns about rising costs and inflation in their campaigns, yet only one candidate succeeded in the eyes of Americans. Trump’s victory indicates that Americans trust him to handle an economy described as the “envy of the world” by The Economist and by Trump himself as “the worst economy ever,” with hopes that he can restore prices to pre-pandemic levels. But what might a Trump-led economy look like?
The “Largest Deportation Operation”
Trump infamously vowed to stage the “largest deportation operation in American history,” expelling “maybe as many as 20 million people” from the United States— despite the total undocumented population being about 11.8 million. Vice President-elect J.D. Vance proposed carrying out 1 million deportations a year, which the American Immigration Council estimates could cost $967.9B USD over a decade. Undocumented immigrants also play a more significant role in America’s economy than Republicans would like to admit. For instance, they paid nearly USD 100B in federal, state, and local taxes in 2022. In addition, they accounted for roughly 5% of that year’s workforce, contributing significantly to the agricultural and food processing sectors. Without them, labour shortages would only drive up inflation, as economist and New York Times columnist Paul Krugman explains:
“The food on your table is largely put there by immigrants, many of whom will end up being deported. What’s going to happen is that farm owners are going to have to pay much, much higher wages to get people to do those jobs, which the farmers will have to pass on in the form of higher prices.”
Republicans often argue against immigration by claiming it would free up employment opportunities for U.S.-born workers. However, a study examining the labour market effects of over 450,000 deportations between 2008 and 2013 found that increased immigration enforcement did not improve job availabilities or wages for U.S.-born workers. Instead, it had the opposite outcome: employment opportunities and wages for ‘low-skilled’ U.S.-born workers decreased. This adverse effect occurred due to higher labour costs, which discouraged businesses from creating jobs and reduced local consumption by immigrants, which weakened the overall demand for goods and services. As a result, businesses either scaled back or moved operations offshore, further reducing the demand for workers. Trump’s deportation policy would not only strain the wallets of everyday Americans but also lower the nation’s gross domestic product (GDP). According to the American Immigration Council, a mass deportation plan could reduce the country’s GDP by 4.2% to 6.8%—a decline not experienced since the Great Recession. Even if Trump does not pursue such extreme measures, any significant increase in deportations will likely harm the economy.
“Largest Tax Cut in History,”… but for Whom?
In February of this year, Trump declared that he would “make the Trump tax cuts the largest tax cut in history.” Since then, in an attempt to reel in working-class voters, he said he would push for legislation to end taxes on tips for restaurant and hospitality workers, as well as on Social Security benefits and overtime pay. However, the federal government would need to find a replacement source of revenue if it aims to achieve even mild progress on these proposals. For instance, repealing taxes on overtime pay would reduce government revenue by an estimated $250 billion to $1.4 trillion on a static basis and by $1 to $5 trillion on an hourly basis.
Dozens of policies are also set to expire in 2025, costing upwards of $4.3 trillion if they were to be extended until 2035— among them is the regressive 2017 Tax Cuts and Jobs Act (TCJA). In April of this year, President Joe Biden expressed his disapproval of the policy on X: “Donald Trump was very proud of his $2 trillion tax cut that overwhelmingly benefited the wealthy and biggest corporations and exploded the federal debt.” Although the TCJA offers modest tax cuts for many Americans, there is truth to Biden’s post, as wealthy Americans receive far greater benefits than the middle or working class. For example, the Tax Policy Center, a nonpartisan research group, estimates that if all the individual income tax changes under the TCJA are extended, approximately 45% of the tax cut benefits would go to households in the top 5% of earners. The TCJA also reduced the corporate tax rate from 35% to 21%, and Trump aims to lower it further to 15% for domestically manufactured companies. According to the watchdog group Committee for a Responsible Budget, such a tax cut could reduce revenue by an estimated $200 billion through Fiscal Year 2035. Given that these measures significantly reduce federal tax revenue, the key question remains: How does the Trump administration plan to address this massive federal deficit?
Sweeping Tariffs
To shrink the federal deficit and boost domestic manufacturing, Trump discussed introducing universal 10-20% tariffs and a 60% tariff on Chinese goods. He also plans to impose 25% tariffs on Canada and Mexico to deter illegal migration and fentanyl, although this plan would violate the terms of the US-Mexico-Canada Agreement (USMCA), which Trump himself signed into law. Economists warn against the adverse inflationary effects of steep tariffs. Other countries do not pay the price; Americans do. American companies pay tariffs by increasing consumer prices, leading to inflation. Kimberly Clausing and Mary Lovely of the Peterson Institute calculated that if Trump’s tariff plans are fully realized, a typical American household would lose $1,700 to $2,600 annually after taxes.
Tariffs are not new to Trump’s economic strategy. In his first term, Trump implemented tariffs as part of his “America first” foreign policy, which was characterized by American unilateralism and political realism. In 2018, he imposed tariffs on steel and aluminum from China, Canada, Mexico, and the EU. While terms were negotiated with Canada, Mexico, and the EU, China, facing the most significant tariffs, retaliated by imposing tariffs on $110B of U.S. imports, escalating to a trade war. Analysts warn that trade wars are likely to occur again, as other countries would likely impose tariffs of their own on U.S. products, hurting U.S. exporters. A trade war could slow the U.S. economy, suppressing the amount of revenue the government takes in. The U.S.’s closest North American allies have already responded to Trump’s plans. Marcelo Ebrard, Mexico’s economy minister, told a radio interviewer, “If you put 25% tariffs on me, I have to react with tariffs.” Canadian Conservative leader Pierre Poilievre, widely considered a strong contender in the next Canadian election, also said in a radio interview that he would “fight fire with fire” to address Trump’s threats.
The Bottom Line
While Trump’s proposals are marked by bold promises, many are unlikely to be fully implemented. At worst, Americans could face significant economic disruptions, while at best, the impact may be minimal. Ultimately, even if these plans are scaled back, it is crucial to consider their potential impacts as they reveal his priorities for the next four years: scapegoating immigrants, bolstering corporate interests, and pursuing an “America First” foreign policy.
Edited by Campbell Graham
This is an article written by a Staff Writer. Catalyst is a student-led platform that fosters engagement with global issues from a learning perspective. The opinions expressed above do not necessarily reflect the views of the publication.
Lily Christopoulos is in her first year at McGill University, currently pursuing a B.A. in Political Science with a minor in Philosophy. As a staff writer, she is particularly interested in globalization and corporate power.