Analyst questions how U.S. economy might fare under Trump

WASHINGTON (AP) President-elect Donald Trump won his return to the White House in part by promising big changes in economic policy, more tax cuts, huge tariffs on imports and mass expulsions of immigrants working illegally in the United States.

In some ways, his victory marked a rejection of President Joe Biden's economic management and a protest against inflation. This happened despite low unemployment and steady growth under the Biden administration.

What future for the economy under Trump? Paul Ashworth of Capital Economics recently spoke with the Associated Press. The interview has been edited for length and clarity.

Q: What type of economy is Trump inheriting?

A: Objectively, it is a strong economy. But that doesn't mean the man in the street agrees. If we look only at the growth figures, they have been strong and the unemployment rates quite low. But consumer confidence remains moderate. Even though the inflation rate has fallen, the price level remains much higher than before. This obviously weighed on consumer confidence.

Q: What will Trump's economic priorities be?

A: There is a lot of room for fiscal policy, just extending the original Trump tax cuts, which are set to expire at the end of 2025. The debt outlook is approaching 100% of GDP and are on track to reach 120% of this. GDP in another decade. Extending expiring tax cuts is intended to avoid fiscal tightening, not to introduce new stimulus measures into the economy. We are not convinced we will see further stimulus measures.

Q: What do you expect from the prices?

A: During his first term, Trump used tariffs as a negotiating tool to extract concessions from other countries. We see an echo with the recent threats against Canada, Mexico and China. I think there will be a 10% universal tariff and higher tariffs on China. I don't think many countries would be able to negotiate their way out of this. This is reflected in the prices of final consumer goods. This will add up to 1% to inflation. But this is a one-off change rather than an increase in the current inflation rate.

Q: What impact would you expect from Trump's promised deportations?

A: This affects the supply side of the economy. But it also affects demand because these people are spending money. The question is which is affected more, because that determines whether it is inflationary or deflationary. We believe the impact on the supply side of the economy will be slightly larger, in which case we view it as slightly inflationary. Certain sectors, such as agriculture, construction, agri-food and catering, would be hit harder. This is where you would expect inflation to show up in food and restaurant prices. Immigration policies and tariffs could reduce growth by half a percent and add 1 percent to inflation. This is not ideal. But it's certainly not a disaster.

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