Trump's tariffs could overshadow the benefits of his tax cuts, economists say

By Victor Reklaitis

Here's how tariffs, tax cuts, reduced immigration and monetary policy might affect U.S. GDP - in one chart

As analysts assess what a second Trump administration could mean for the U.S. economy, one team from Oxford Economics is forecasting that the proposed tariffs could eclipse any boost from tax cuts.

Presumptive 2024 Republican presidential nominee Donald Trump's proposals have included an across-the-board 10% tariff on imported goods and a 60% levy on Chinese imports, along with a cut to the top corporate tax rate - to 15%.

Oxford Economics, an independent advisory firm, has modeled a "full-blown Trump" scenario which could occur if the former president returns to the White House and Republicans get control of both chambers of Congress after November's election.

In that scenario, Trump and his fellow Republicans prevent the expiration of personal tax cuts from their 2017 tax law, reduce corporate taxes, agree to higher spending levels, curb immigration and impose across-the-board tariffs on major trading partners.

In that case, inflation would go up, the Oxford Economics team said in a note, and the "renewed trade wars more than offset the benefit from lower taxes," dragging down the level of real gross domestic product as much as 1.8% lower relative to their baseline projection for GDP.

"The economy slows to a pace that is well below its potential growth rate, but despite the slowdown, the Fed focuses on the inflationary boost and pauses on rate cuts in 2026 and 2027," the economists added, referring to the Federal Reserve, which has been weighing when to cut its benchmark interest rate.

The purple line in the chart below aims to show the potential net effect of all those policies on U.S. GDP.

The Trump campaign on Thursday didn't immediately respond to MarketWatch's request for comment on the analysis from Oxford Economics.

The advisory firm also has offered the chart below that shows how the Fed's preferred inflation gauge, the personal consumption expenditures price index, could be affected in the "full-blown Trump" scenario.

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-Victor Reklaitis

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04-25-24 1549ET

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