Tax and financial advice from the Silicon Valley expert.

Inflation and Recession Ahead

American voters will probably be disappointed that Donald Trump’s policies will likely result in more inflation, higher interest rates and a recession.

Trump says he will impose a 60% tariff on imports from China and a 10% tariff on all other imports. Tariffs are a tax imposed on the importer of foreign goods. The importer passes the additional expense on to its customers by charging higher prices. The United States already imposes about $79 billion of tariffs on targeted foreign goods it believes are unfairly priced too low. Donald Trump says he will impose tariffs on ALL foreign goods, increasing annual tariffs by about $524 billion.

Check the labels on goods at the store. We have a global marketplace. Most clothing, cars, electronics and toys are imported or have imported components. We also import meat and vegetables.

Foreign governments would surely retaliate for the tariffs, creating financial hardships for their residents and possibly more counter-measures back and forth among countries.

According to the Tax Foundation, the additional tariffs would shrink the U.S. gross domestic product by at least 0.8% and employment would fall by 684,000 full-time equivalent jobs.

Donald Trump also says he will deport unauthorized immigrants living in the U.S. He has also threatened to deport some legal immigrants living here, such as 15,000 workers from Haiti who were invited to come to work and live in Springfield, Ohio.

According to the Pew Research Center, there were about 11 million unauthorized immigrants living in the United States during 2022. The number is slightly higher now. According to the U.S. Census, the U.S. population on November 7, 2024 was about 337,378,507, so those immigrants are about 3.3% of the U.S. population.

About 8.3 million of U.S. workers in 2022 were unauthorized immigrants. The United States is already at close to full employment, so eliminating those workers will probably result in higher labor costs, which will also contribute to higher prices.

According to the American Immigration Council, the construction and agriculture industries would lose at least one in eight worker and hotels and restaurants would lose about one in 14 workers. The construction trades would lose more than 30% of its workers, such as plasterers, roofers and painters. (New homes can’t be built without workers to build them.) More than 1 million undocumented immigrant entrepreneurs, who generated $27.1 billion in total business income, would be deported.

Those unauthorized immigrants are also U.S. consumers. During 2022, they spent about $256.8 billion, or about 4.2% – 6.8% of the U.S. gross domestic product.

Undocumented workers do the work that other U.S.-born workers refuse to do, like cutting meat, washing dishes, harvesting crops and cleaning hotel rooms.

In May, 2023 Florida enacted Senate Bill 1718, requiring private businesses with 25 or more employees to use the federal E-Verify database to screen new workers, making it a felony to transport an undocumented immigrant into the state or for an undocumented immigrant to use a false ID to obtain work, and prohibiting an undocumented immigrant from driving with an out-of-state license.

Undocumented immigrants moved out of the state, because they were afraid and unable to work. Within months, farmers, builders, restaurants, hotels, and other businesses in the state complained of worker shortages. Construction projects stalled, fruit rotted in the fields, hotels and restaurants fired staff. Rental units were left empty. Businesses lost customers.

American farmers have already experienced not having workers to harvest crops during the Trump administration. The crops had to be plowed under at a loss.

Family farms will probably be forced to sell out to large corporate operations that have expensive harvesting equipment.

If food can’t be grown at American farms, the United States will become dependent on imported food, subject to Trump’s 10% tariff. The food shortage will also result in higher prices, contributing to inflation.

The Federal Reserve will respond to high inflation with higher interest rates, further dampening the U.S. economy but helpless to solve inflation together with recession.

I think you can see that the combination of Trump’s policies of high tariffs together with mass deportation of undocumented immigrants, will create a vise effect, resulting in inflation, probably together with recession, and a general mess in the U.S. economy.

Tax and financial advice from the Silicon Valley expert.