Trump Economy Inflation Weighted Supply Expansion Polarizes Consumer Confidence
In the Trump economic outlook in the US, supply expansion increases inflationary pressures, and consumer confidence is extremely sensitive to polarization by Republican and Democratic political leanings.
A consumer sentiment survey by the University of Michigan shows that Democrats and Republicans have completely different views on the potential effects of Trump’s policies, with Republicans’ consumer sentiment surging after Election Day but plummeting for Democrats.
Regarding the split in consumer sentiment between the two parties, Joanne W. Shue, director of the University of Michigan Surveys, said in a statement on the 20th, “Throughout interviews this month, Democrats expressed concerns that anticipated policy changes, especially tariff increases, would lead to a resurgence in inflation. Republicans disagreed, and they expect the next president to dramatically slow inflation.”
Paul Ashworth, an analyst at Capital Economics, told the AP on the 24th that “consumer confidence is still muted, and while inflation has slowed, the price level is still much higher than before, which is clearly weighing on consumer sentiment” under Trump.
Ashworth said that under Trump, “I think there will be a 10% universal tariff on China and higher tariffs,” and that “I don’t think many countries will be able to negotiate their way out of this.
That will be reflected in the final consumer price and will add up to 1% to inflation.” Ashworth said of the “Trump deportation policy economy,” “It affects the supply side of the economy and it also affects demand because these people (the deportees) are spending money,” and “The question is which one is going to hit the hardest, and that determines whether it’s inflation or deflation, and I think the impact on the ‘supply side of the economy’ will be a little bit bigger, so I think there will be a little bit of inflation.”
Regarding the inflation hit, “Some sectors like agriculture, construction, food processing, and restaurants will be hit harder, and that’s where you would expect inflation to show up, which is food prices and restaurant prices,” he said. “Immigration policies and tariffs could reduce growth by 50% and add 1% to inflation, which is not ideal. But it’s certainly not a disaster.”
“This is a very uncertain outlook, and much of that uncertainty comes from potential policy changes,” Michael Garpen, chief U.S. economist at Morgan Stanley, told the New York Times on the 19th about the Trump economy, predicting that U.S. economic growth next year will slow from “2.5% this year to 2.0% next year.”
The New York Times economics reporter's Trump economic outlook for next year stated on the 19th that "most economic models predict that steep new tariffs and the potential deportation of millions of undocumented immigrants will lead to higher prices, slower growth, or both," and that "at the same time, Trump's promise of tax cuts for individuals and businesses could lead to faster economic growth, but it could also lead to larger deficits."
The New York Times then went on to say about Trump's Republican strategy of "deregulation," "While this may boost corporate profits and perhaps increase overall productivity, some warn that such changes could increase worker injuries, cause environmental damage, and make the financial system more vulnerable to crises in the long run."
In reality, no one yet knows exactly what policies President Trump will pursue, in what order, or how many agenda items will pass through Congress and the courts.
The New York Times stated that "no one knows what the economy will look like in 2025 or beyond." America's economic gamble began in the presidential election, when many Americans objected to Biden's claims that the economy was in good shape and voted for Trump.
The US economy was suffering from growing discontent, especially over the high prices of basic necessities such as food and housing, which provided many with a major reason to vote for Trump's re-election.
This led to a University of Michigan consumer sentiment survey that showed a rebound in pro-Trump sentiment before the election and continued to improve, but Democratic supporters actually saw a decline in consumer confidence under Trump next year.
The gamble on the U.S. economy was reflected in the “surging stock prices following Trump’s victory,” the Times said, “suggesting that many investors were seeing a rosier picture of fatter profits and faster growth.”
Many of them appeared to be betting that Trump would take a moderate approach to trade and immigration while focusing on cutting taxes and regulations. Investors cheered Trump’s picks of Wall Street executives for key posts, particularly hedge fund manager Scott Bessent as Treasury secretary, and believed that this would “deter” the president from imposing the most aggressive tariffs he had proposed.
The New York Times reported that “it could be a dangerous gamble (investors expecting a hard-line policy to be abandoned)” and that “he has signaled a hard-line stance by appointing Thomas Homan, the ‘border czar’ on immigration policy, and Stephen Miller, the deputy chief of staff, and even after the selection of Treasury Secretary Bessent, President Trump has continued to mention his plan to impose tariffs and announced that he would impose a 25% tariff on imports from Canada and Mexico if they do not stop drugs and immigrants from entering the United States.”
“Trade and immigration policies could be extremely disruptive to the economy,” said Michael Strain, an economist at the conservative think tank American Enterprise Institute. “In the worst-case economic outlook, steep new tariffs could discourage investment, mass deportations could limit employers’ ability to find workers, and rising deficits could drive up borrowing costs, leading to rising prices and slowing growth, a form of ‘stagflation’ that the U.S. economy last experienced nearly half a century ago.”
Strain said, “In this scenario, import prices, food prices, restaurant meal prices, and housing prices all rise sharply,” and “I don’t predict all of this will happen, but Wall Street is making a mistake by dismissing the possibility of this outcome.”
The New York Times explained the difference between the Trump 1st term in 2017 and the 2025 term by saying, “When Trump took office in 2017, the U.S. economy was in the midst of a sharp recovery from the Great Recession, with both inflation and interest rates low, and this has been the case for years.
This time, however, President Trump is inheriting a solid but slowing economy, with inflation moderated but still above the Fed’s 2% target, and the memory of years of rapid price increases is fresh in consumers’ minds.”
Interest rates remain high, the Fed has cut rates more slowly than forecasters expected a year ago, and stocks have plunged since Fed Chair Powell said in a speech on Wednesday that he would limit next year’s rate cuts to “two tapered” cuts (up from four in September) as a “blow to the ground.”
All of this suggests that both consumers and policymakers are likely to be more sensitive to higher prices than they were during Trump's first term.