February 3, 2025

Let’s talk about three key pillars of President Trump’s policy agenda: tariffs, immigration, and taxes.

Tariffs have been a Trump centerpiece. He announced his intention to impose 25% tariffs on Mexico and Canada, our two largest trading partners after China, until they clamp down on fentanyl trafficking and undocumented migration.

But let’s be clear: a tariff is a tax on imports. And when they’re imposed, they’re not absorbed, they’re passed on via higher prices.

Historical economic data proves it. President Trump has discussed tariffs on all imports, which means higher import prices, which also means higher prices for everything that competes with imports. That is substantially inflationary.

As for immigration, the president wants to deport the estimated 13 million undocumented immigrants in the U.S. These people are approximately 50% of the U.S. farm workforce and most of them are unauthorized.

They work 10-12 hour shifts regardless of weather, with longer shifts during harvest. They’re paid below the minimum wage, receiving none of the benefits provided to U.S. citizens or legal residents.

And despite relying on these undocumented workers, American farmers need more labor. Agriculture isn’t the only area hit – 23% of the U.S. construction workforce is illegal immigrants with no residency or labor authorization.

If all these people are deported, there will be a big labor shortage. These policies will force a near-term labor interruption that could harm farm and construction supply. As we know, sudden supply drops with steady demand means higher prices.

Lastly, President Trump wants to extend tax cuts and deepen them. While everyone dislikes taxes, big tax cuts will be inflationary (though perhaps not as much as tariffs and deportations).

Tax cuts line the pockets of corporations and households. They’ll likely spend that money, just as they did when the first Trump administration and President Biden both unleashed stimulus.

However, cutting taxes while the Federal Reserve is cutting interest rates and the economy is growing is a combination that tends to be inflationary.

So, if President Trump keeps his promises on tariffs, immigration, and taxes, it’ll probably unleash inflation as severe as we saw under President Biden. Depending upon how the Fed reacts, it could be even worse.