Trumponomics – the economics of a second Trump presidency | Beyond the Headlines

Hello. My name is Bernard Yaros. I’m a lead economist on the US Macro team here at Oxford Economics. The 2024 election is less than seven months away, and the outcome of the presidential contest, along with the resulting balance of power in Congress, will matter a lot for the outlook in 2025 and beyond. So we are continuing our series of US election analysis with a new research briefing that considers two scenarios for the US economy,

if former president Donald Trump returns to the white House and Republicans sweep Congress. The first is our so-called “limited Trump” scenario. In it, we assume that Republicans extend the personal tax cuts that were first enacted in 2017 and partly fund these tax cuts with the repeal of some, but not all, of the Inflation Reduction Acts clean energy provisions.

From the vantage of the White House, former President Trump imposes targeted tariffs on the EU and China. In this “limited Trump” scenario, inflation is modestly higher compared to our baseline. The economy performs stronger over the next three years, and because inflation is higher in this scenario, the Federal Reserve cuts interest rates more slowly the next years and even presses pause on its rate cutting cycle in 2027.

The next scenario is our so-called “full-blown Trump” scenario, which assumes former President Trump and congressional Republicans double down on the many tax and spending policies I previously described. They cut taxes for businesses and partly fund these and other tax cuts with the full repeal of the Inflation Reduction Act’s climate provisions. And from the White House, former President Trump imposes 60% tariffs on China and 10% tariffs on all other major trading partners.

In this “full-blown Trump” scenario, inflation is even higher, and this is especially due to the across the board tariffs, which reduce the purchasing power of households and squeeze corporate profit margins. As these higher tariffs kick in, the economy slows to well below its potential growth rate. Yet despite the sharp growth slowdown, the fed remains laser focused on inflation and presses pause on its rate cutting cycle in 2026 and even hikes interest rates in 2027.

At Oxford Economics, we will continue to publish more election scenarios that consider the economic implications of a divided government and a Democratic sweep. So stay tuned.