Tariffs, taxes, migration: The "America First" strategy could backfire like a boomerang

Wirtschaftswoche Tariffs, taxes, migration: The "America First" strategy could backfire like a boomerang Article by , dpa • 2 hours • 4 minutes reading time Donald Trump's bold campaign promises could still be his undoing. Trump promises prosperity and more money in the wallet. But the consequences of his "America First" strategy could be more expensive for US citizens than expected. Donald Trump has promised to end the "inflation nightmare". The frustration of people in the USA over high prices is likely to be a main reason why the Republican won the presidential election and will move back into the White House in January. But his bold promise could become a major problem for the 78-year-old. Because his plans could drive prices up even further. What does Trump have in mind in terms of economic policy? 1. Tariffs Trump announced far-reaching tariffs during the election campaign - at least 60 percent on goods from China and up to 20 percent on goods from other countries. Tariffs are a type of surcharge on imported goods. They are due at the border when a company or consumer in the USA buys the product from abroad. Trump argues that his tariff policy will lead to US companies producing more in the USA again. This creates jobs. It is the classic "America First" policy that Trump has already pursued during his first term in office. The Democratic US President Joe Biden has also relied on protectionism. He has not only largely maintained Trump's China tariffs, but has also imposed new tariffs - for example on electric cars. While Biden has focused relatively specifically on certain sectors, the tariffs announced by Trump are more far-reaching. Many experts fear that this isolation policy will lead to higher prices. After all, many goods from abroad cannot be produced in the USA overnight. Companies are therefore still dependent on imports from abroad for production - import tariffs then increase the costs of these goods. Companies are expected to simply pass these costs on to consumers. China and Europe are also likely to respond with retaliatory tariffs - which in turn is bad for US companies that export a lot. 2. Taxes Many tax breaks that Trump passed during his first term in office will not expire until next year. Trump wants to extend these reliefs - for example on income tax. He has also promised to further reduce corporate taxes. One of his best-known campaign promises is tax exemption for tips and overtime. The salaries of employees in the service industry are often so low that tips make up the majority of their pay. The Republican has also promised that seniors will no longer have to pay taxes on their monthly pension benefits. Trump and the Republicans argue that the tax breaks will be financed by the resulting economic stimulus. Others fear that the national debt will increase. The US national debt is currently almost 36 trillion US dollars (around 34 trillion euros). An analysis by the non-partisan tax organization Committee for a Responsible Federal Budget concludes that Trump's tax plans could increase the US debt by 7.5 trillion US dollars over the next ten years. 3. Migration During the election campaign, the Republican repeatedly announced mass deportations of illegal immigrants. According to Trump, this will combat the housing shortage and high rents. The reality in the US, however, is that many immigrants - even those without papers - work in construction, hospitality and agriculture. Whole industries rely on the cheap labor of immigrants. If they suddenly disappear, there is a risk of a labor shortage, because unemployment in the US is currently low. It would be difficult to find people to take on the vacant jobs under similarly poor conditions. Companies would therefore have to pay higher salaries - and they would likely pass the costs on to consumers. 4. Interest rate policy The US Federal Reserve works independently of the US government. But that did not stop Trump from publicly putting pressure on the Federal Reserve during his first term in office. The Republican wants low interest rates to stimulate the economy. The Fed has just started to lower interest rates again after a phase of high interest rate policy. It had previously raised the key interest rate to get high inflation under control - because high interest rates slow demand - and ideally the inflation rate falls. The inflation rate - at more than 9 percent in summer 2022, it was the highest it had been in around four decades - has fallen since the interest rate hikes.